-----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, KkBjxt6tdGetFZZYFwLoogmcCvDtZUftymejkjmZdf7tfEw9Q89eXlmw1yq1KDYu LcUmUG/jlADor3yI0mIYQQ== 0000950114-98-000088.txt : 19980309 0000950114-98-000088.hdr.sgml : 19980309 ACCESSION NUMBER: 0000950114-98-000088 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980306 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: 1ST SOURCE CORP CENTRAL INDEX KEY: 0000034782 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 351068133 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-06233 FILM NUMBER: 98559067 BUSINESS ADDRESS: STREET 1: 100 N MICHIGAN ST CITY: SOUTH BEND STATE: IN ZIP: 46601 BUSINESS PHONE: 2192352702 MAIL ADDRESS: STREET 1: P O BOX 1602 STREET 2: P O BOX 1602 CITY: SOUTH BEND STATE: IN ZIP: 46634 FORMER COMPANY: FORMER CONFORMED NAME: FBT BANCORP INC DATE OF NAME CHANGE: 19820818 10-K405 1 1ST SOURCE CORPORATION FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 ------------------------------------------------ OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ---------------------- ----------------- Commission file number 0-6233 ------ 1st SOURCE CORPORATION - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Indiana 35-1068133 - ----------------------------------------- ----------------------------- (State of other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 100 N. Michigan Street, South Bend, Indiana 46601 - ------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 219/235-2000 ------------ Securities registered pursuant to Section 12(b) of the Act: None ---- Securities registered pursuant to Section 12(g) of the Act: 9% Cumulative Trust Preferred Securities and related guarantee - $25 par value ------------------------------------------------------------------------------ (Title of Class) ---------------- Floating Rate Cumulative Trust Preferred Securities and related --------------------------------------------------------------- guarantee - $25 par value ------------------------- (Title of Class) ---------------- Common Stock - without par value -------------------------------- (Title of Class) ---------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----------- ----------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 17, 1998. Common Stock, without par value - $279,966,444. - ----------------------------------------------- The number of shares outstanding of each of the registrant's classes of stock as of February 17, 1998. Common Stock, without par value - 17,450,797 shares. - ---------------------------------------------------- 9% Cumulative Trust Preferred Securities and related guarantee, $25 par - ----------------------------------------------------------------------- value - 1,100,000 shares. - ------------------------- Floating Rate Cumulative Trust Preferred Securities and related guarantee, - -------------------------------------------------------------------------- $25 par value - 690,000 shares. - ------------------------------- DOCUMENTS INCORPORATED BY REFERENCE Portions of the annual shareholders report for the year ended December 31, 1997, are incorporated by reference into Part II. Portions of the annual proxy statement for the 1998 annual meeting of shareholders are incorporated by reference into Parts II and III. 2 PART I - ------ ITEM 1. BUSINESS GENERAL 1st Source Corporation is an Indiana corporation and registered bank holding company headquartered in South Bend, Indiana which commenced operations as a bank holding company in 1971. As used herein, unless the context otherwise requires, the term "Company" refers to 1st Source Corporation and its subsidiaries. At December 31, 1997, the Company had assets of $2.42 billion, deposits of $1.89 billion and total shareholders' equity of $195.0 million. Pages 18 through 41 of the Company's Annual Report to Shareholders for the year ended December 31, 1997 are incorporated herein by reference. The Company, through its principal subsidiary 1st Source Bank (the "Bank"), delivers a comprehensive range of consumer and commercial banking services to individual and business customers through 45 banking locations in the northern Indiana/southwestern Michigan market area. The Bank also competes for business nationwide by offering specialized financing services for used private aircraft, automobiles for leasing and rental agencies, heavy duty trucks and construction equipment. The Bank, which was chartered as an Indiana state bank in 1922, is a member of the Federal Reserve System and its deposits are insured by the Federal Deposit Insurance Corporation (the "FDIC") to the extent provided by law. The Bank is headquartered in South Bend, Indiana, which is in northern Indiana, approximately 95 miles east of Chicago and 140 miles north of Indianapolis. Its principal market area consists of eight counties in northern Indiana and three counties in southwestern lower Michigan. South Bend, in St. Joseph County, is the largest city in a 55-mile radius, and is a regional center for educational institutions, health care, financial, accounting and legal services and retailing. The Company's other subsidiaries include 1st Source Leasing, Inc., an originator and servicer of personal property leases to businesses nationwide, 1st Source Insurance, Inc., a general property and casualty insurance agency in South Bend, 1st Source Capital Corporation, a licensed small business investment company, 1st Source Capital Trust I and II, subsidiaries created to issue $44.75 million of Trust Preferred Securities, Michigan Transportation Finance Corporation, a company which manages the non-Indiana assets of our national niche lending businesses, and Trustcorp Mortgage Company, a mortgage banking company with four offices in Indiana and one in Ohio. The Company's inactive subsidiaries include 1st Source Travel, Inc., 1st Source Auto Leasing, Inc., and FBT Capital Corporation. The principal executive office of the Company is located at 100 North Michigan Street, South Bend, Indiana 46601 and its telephone number is (219) 235-2000. BUSINESS STRATEGY AND OBJECTIVES The Company, as part of its "Vision 2000" strategic planning process commenced in 1995, has identified several business objectives and strategies which focus on growth and customer service. The principal objectives of the Company under Vision 2000 have been to (i) increase financial performance and market share, (ii) provide exceptional customer service, (iii) enhance credit quality, and (iv) maintain cost controls. The Company has employed the following strategies to further its Vision 2000 objectives: 1. Increase market share in each market served and as a percentage of each customer's relationship. The Company opened three new banking locations in 1997 and ten in 1996 as part of its banking center expansion program designed to maintain its position as one of the dominant financial institutions in its market area -- which includes eight counties in northern Indiana and three counties in southwestern lower Michigan. Management 2 3 believes that such a strategy allows the most effective and efficient use of the Company's marketing resources and assures that the Company's banking offices are accessible to a majority of the people residing in the markets served. The Company's goal is to deliver highly personal and superior customer services through each of its banking facilities and to meet a higher percentage of each customer's financial needs through personal relationship management. 2. Expand fee-based businesses. The Company currently provides a number of fee-based services to its clients, the major services being trust, mortgage banking, equipment leasing, property and casualty insurance, and securitized loan servicing. The Company believes that additional sources of fee income are available from existing relationships and that existing fee-based product lines can be used effectively in developing new relationships with customers. The Company also believes that customers are more loyal and responsive to its products and services when a large percentage of a customer's financial services are provided directly by the Company. The Company's fee-based businesses are designed to strengthen the relationship between the Company and its customers. 3. Expand the national niche businesses across the United States taking advantage of specialized opportunities. The Company caters to specialized national market niches that management believes are not being well served by either the credit subsidiaries of manufacturers or by other financial institutions. Asset-based lending and personal relationship management of the customer base, together with an efficient method of operation, is the focus of the Bank's Transportation and Equipment Financing Group, which provides such services. Additional experienced sales people have been and will be added to ensure better geographic coverage in areas of opportunity. The Company has also pursued a strategy of securitizing loan receivables so that this Group's business growth is not totally dependent on deposit funding. 4. Actively managing credit quality. The Company has adopted a proactive credit management process with loan officers maintaining responsibility for the quality of the credits they originate and manage. The credit management process is supported by a collective and collaborative review and approval process and is balanced by a review, evaluation and grading process undertaken by an objective third party. Senior management is actively involved in the management of the process and incentive compensation is based on the Company's overall credit experience. BANKING AND FINANCIAL SERVICES The organization provides financial services through the following groups: * Personal and Small Business Banking Group -- The Bank's Personal and Small Business Banking Group serves individuals and small businesses with direct lending, credit cards, auto leasing, personal trust, brokerage services, and a wide range of deposit products. The Group's operations are conducted through the Bank's main office, its 45 branch offices, two free-standing drive-up facilities and 47 automatic teller machines. Loans of approximately $462 million and deposits of approximately $1.56 billion were attributable to the Group at December 31, 1997. The Bank's Personal Trust Division managed approximately 1,626 accounts at December 31, 1997, consisting of $929 million in assets. The Personal Trust Division earned $4.77 million in fee income during 1997. 3 4 Besides traditional branch locations, alternative delivery systems are in place to enhance customer service. Certificates of Deposit and the ability to pay bills are offered on the Internet and customers also can use their telephone to check their account balances and transfer funds 24 hours a day. A centralized "loan by phone" system provides customers with immediate loan decisions while they are on the phone and coordinates product delivery through the local banking offices. The organization's goal is to continue to improve the match between a customer's individual needs and the Bank's products and services. * Commercial Banking Group -- The Bank's Commercial Banking Group provides a wide range of services to business customers, including loans and leases, investments, international services, corporate cash management and employee benefit trust services. Customers can initiate deposit and loan transactions, check balances and account clearings, and transfer funds among accounts on a daily basis using a direct-access PC to communicate with the Bank. The Group's primary focus is privately-held or closely-controlled firms, which have annual sales between $2 million and $100 million and are doing business or are located within an 80-mile radius of South Bend. Loans of approximately $541 million and deposits of approximately $71 million were attributable to the Group at December 31, 1997. The Bank's Employee Benefit Division managed approximately 526 retirement plans at December 31, 1997, consisting of $626 million in assets. The Employee Benefit Division earned $2.54 million in fee income during 1997. * Transportation and Equipment Financing Group -- The Bank's Transportation and Equipment Financing Group offers specialized financing services nationwide. The Group serves a limited number of high-quality automobile leasing and rental companies, truck leasing companies and manufacturers of specialized truck bodies, finances used aircraft nationwide, and provides lending services to dealers, contractors and other end users of construction equipment. The Group has employees located in Alaska, Georgia, Indiana, Kansas, Michigan, North Carolina, Pennsylvania, Washington and Wisconsin. Loans of approximately $743 million, or 41.3% of the Company's consolidated total loans, were attributable to the Group at December 31, 1997. The Group also services approximately $167 million of off-balance sheet loans, primarily as the result of securitizations. * Mortgage Banking Group -- Trustcorp Mortgage Company, a subsidiary of the Company, is a mortgage banking company operating on a regional basis. The principal business activities include origination, purchase, sale and servicing of mortgage loans for investors. Locations include four offices in Indiana and one in Columbus, Ohio. As of December 31, 1997, Trustcorp Mortgage Company had outstanding loans of $49 million and serviced a mortgage portfolio of $1.35 billion. OWNERSHIP As of February 17, 1998, the directors and executive officers of the Company and their immediate families owned approximately 44.2% of the Company's common stock and, as a result, exercise substantial control over the Company. 4 5 COMPETITION The activities in which the Company and the Bank engage are highly competitive. Those activities and the geographic markets served involve primarily competition with other banks, some of which are affiliated with large bank holding companies headquartered outside of the Company's principal market. Larger financial institutions competing within the Company's principal market, but headquartered elsewhere, include KeyBank, Norwest Bank, Standard Federal Bank and Valley American Bank and Trust Company. Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans and other credit and service charges, the quality of services rendered, the convenience of banking facilities and, in the case of loans to large commercial borrowers, relative lending limits. In addition to competing with other banks within their primary service areas, the Bank also competes with other financial intermediaries, such as credit unions, industrial loan associations, securities firms, insurance companies, small loan companies, finance companies, mortgage companies, real estate investment trusts, certain governmental agencies, credit organizations and other enterprises. Additional competition for depositors' funds comes from United States Government securities, private issuers of debt obligations and suppliers of other investment alternatives for depositors. Many of the Company's non-bank competitors are not subject to the same extensive federal regulations that govern bank holding companies and banks. Such non-bank competitors may, as a result, have certain advantages over the Company in providing some services. The Company competes against larger financial institutions, which have the advantage of certain economies of scale not enjoyed by a financial institution the size of the Company. 1st Source counters by relying on a history in the market dating back to 1863, with the relationships long-term employees have with their customers and with the capacity for quick local decision-making. EMPLOYEES The Company employs approximately 966 persons on a full-time equivalent basis. The Company provides a wide range of employee benefits and considers employee relations to be good. REGULATION AND SUPERVISION GENERAL. The Company and the Bank are extensively regulated under federal and state law. These laws and regulations are intended to protect depositors, not shareholders. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in applicable laws or regulations may have a material effect on the business and prospects of the Company. The operations of the Company may be affected by legislative changes and by the policies of various regulatory authorities. The Company is unable to predict the nature or the extent of the effects on its business and earnings that fiscal or monetary policies, economic controls or new federal or state legislation may have in the future. The Company is a registered bank holding company under the BHCA and, as such, is subject to regulation, supervision and examination by the Board of Governors of the Federal Reserve System (the "Federal Reserve"). The Company is required to file annual reports with the Federal Reserve and to provide the Federal Reserve such additional information as it may require. 5 6 The Bank, as an Indiana state bank, is supervised by the Indiana Department of Financial Institutions (the "DFI") and the Federal Reserve. As such, the Bank is regularly examined by and subject to regulations promulgated by the DFI and the Federal Reserve. Because the FDIC provides deposit insurance to the Bank, the Bank is also subject to supervision and regulation by the FDIC (even though the FDIC is not its primary federal regulator). Recent and Pending Legislation. The enactment of the legislation described below has significantly affected the banking industry generally and will have an ongoing effect on the Company and the Bank in the future. Financial Institutions Reform, Recovery, and Enforcement Act of 1989. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") reorganized and reformed the regulatory structure applicable to financial institutions generally. FIRREA, among other things, enhanced the supervisory and enforcement powers for the federal bank regulatory agencies, required insured financial institutions to guaranty repayment of losses incurred by the FDIC in connection with the failure of an affiliated financial institution, required financial institutions to provide their primary federal regulator with notice (under certain circumstances) of changes in senior management and broadened authority for bank holding companies to acquire savings institutions. Under FIRREA, federal banking regulators have greater flexibility to bring enforcement actions against insured institutions and institution-affiliated parties, including cease and desist orders, prohibition orders, civil money penalties, termination of insurance and the imposition of operating restrictions and capital plan requirements. These enforcement actions, in general, may be initiated for violations of laws and regulations and unsafe or unsound practices. FIRREA granted the FDIC back-up enforcement authority to recommend enforcement action to an appropriate federal banking agency and to bring such enforcement action against a financial institution or an institution-affiliated party if such federal banking agency fails to follow the FDIC's recommendation. FIRREA also requires, except under certain circumstances, public disclosure of final enforcement actions by the federal banking agencies. The Federal Deposit Insurance Corporation Improvement Act of 1991. The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was adopted to recapitalize the Bank Insurance Fund ("BIF") and impose certain supervisory and regulatory reforms on insured depository institutions. FDICIA, in general, includes provisions, among others, to (i) increase the FDIC's line of credit with the U.S. Treasury in order to provide the FDIC with additional funds to cover the losses of federally insured banks, (ii) reform the deposit insurance system, including the implementation of risk-based deposit insurance premiums, (iii) establish a format for closer monitoring of financial institutions to enable prompt corrective action by banking regulators when a financial institution begins to experience financial difficulty, (iv) establish five capital levels for financial institutions ("well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized") that would impose more scrutiny and restrictions on less capitalized institutions, (v) require the banking regulators to set operational and managerial standards for all insured depository institutions and their holding companies, including limits on excessive compensation to executive officers, directors, employees and principal shareholders, and establish standards for loans secured by real estate, (vi) adopt certain accounting reforms and require annual on-site examinations of federally insured institutions, including the ability to require independent audits of banks and thrifts, (vii) revise risk-based capital standards to ensure that they (a) take adequate account of interest-rate changes, concentration of credit risk and the risks of nontraditional activities, and (b) reflect the actual performance and expected risk of loss of multi-family mortgages, and (viii) restrict state-chartered banks from engaging in activities not permitted for national banks unless they are adequately capitalized and have FDIC approval. FDICIA also permits the FDIC to make special assessments on insured depository institutions, in amounts determined by the FDIC to be necessary to give it adequate assessment income to repay amounts borrowed 6 7 from the U.S. Treasury and other sources or for any other purpose the FDIC deems necessary and grants authority to the FDIC to establish semiannual assessment rates on BIF and the Savings Association Insurance Fund ("SAIF") member banks so as to maintain these funds at the designated reserve ratios. FDICIA also contained the Truth in Savings Act, which requires clear and uniform disclosure of the rates of interest payable on deposit accounts by depository institutions, and the fees assessable against deposit accounts, so that consumers can make a meaningful comparison between the competing claims of financial institutions with regard to deposit accounts and products. Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. Congress enacted the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act") in September 1994. Beginning in September 1995, bank holding companies have the right to expand, by acquiring existing banks, into all states, even those which had theretofore restricted entry. The legislation also provides that, subject to future action by individual states, a holding company has the right to convert the banks which its owns in different states to branches of a single bank. A state is permitted to "opt out" of portions of the law which will permit conversion of separate banks to branches, but is not permitted to "opt out" of portions of the law allowing bank holding companies from other states to enter the state. A state may also determine, at its option, to permit interstate branching through the establishment of de novo branches by out-of-state banks. The states of Indiana and Michigan have "opted in" early to the interstate branching provisions of the Interstate Act and have also authorized the establishment of de novo branches of out-of-state banks. The Bank established two such branches in Michigan during 1996 and 1997. The Interstate Act also establishes limits on acquisitions by large banking organizations, providing that no acquisition may be undertaken if it would result in the organization having deposits exceeding either 10% of all bank deposits in the United States or 30% of the bank deposits in the state in which the acquisition would occur. Economic Growth and Regulatory Paperwork Reduction Act of 1996. The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (the "EGRPRA") was signed into law on September 30, 1996. EGRPRA streamlined the non-banking activities application process for well-capitalized and well-managed bank holding companies. Under EGRPRA, qualified bank holding companies may commence a regulatorily approved non-banking activity without prior notice to the Federal Reserve; written notice is required within 10 days after commencing the activity. Under EGRPRA, the prior notice period is reduced to 12 days in the event of any non-banking acquisition or share purchase, assuming the size of the acquisition does not exceed 10% of risk-weighted assets of the acquiring bank holding company and the consideration does not exceed 15% of Tier 1 capital. EGRPRA also provides for the recapitalization of SAIF, which generally insures the deposits of thrift institutions, in order to bring it into parity with the BIF. As a result of this recapitalization, the overall FDIC assessment rate for 1998 for the Bank is 1.26 basis points for each $100 of BIF assessable deposits. Pending Legislation. Because of concerns relating to competitiveness and the safety and soundness of the banking industry, Congress is considering a number of wide-ranging proposals for altering the structure, regulation and competitive relationships of the nation's financial institutions. Among such bills are new proposals to merge the BIF and the SAIF insurance funds, to alter the statutory separation of commercial and investment banking and to further expand the powers of banks, bank holding companies and competitors of banks. It cannot be predicted whether or in what form any of these proposals will be adopted or the extent to which the business of the Company may be affected thereby. 7 8 BANK AND BANK HOLDING COMPANY REGULATION. As noted above, both the Company and the Bank are subject to extensive regulation and supervision. Bank Holding Company Act. Under the Bank Holding Company Act of 1956, as amended (the "BHCA"), the activities of a bank holding company, such as the Company, are limited to business so closely related to banking, managing or controlling banks as to be a proper incident thereto. The Company is also subject to capital requirements applied on a consolidated basis in a form substantially similar to those required of the Bank. The BHCA also requires a bank holding company to obtain approval from the Federal Reserve before (i) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares (unless it already owns or controls the majority of such shares), (ii) acquiring all or substantially all of the assets of another bank or bank holding company, or (iii) merging or consolidating with another bank holding company. The Federal Reserve will not approve any acquisition, merger or consolidation that would have a substantially anticompetitive result, unless the anticompetitive effects of the proposed transaction are clearly outweighed by a greater public interest in meeting the convenience and needs of the community to be served. The Federal Reserve also considers capital adequacy and other financial and managerial factors in reviewing acquisitions or mergers. The BHCA also prohibits a bank holding company, with certain limited exceptions, (i) from acquiring or retaining direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or (ii) from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by Federal Reserve regulation or order, have been identified as activities closely related to the business of banking or of managing or controlling banks. The Federal Reserve, in making such determination, considers whether the performance of such activities by a bank holding company can be expected to produce benefits to the public such as greater convenience, increased competition or gains in efficiency in resources, which can be expected to outweigh the risks of possible adverse effects such as decreased or unfair competition, conflicts of interest or unsound banking practices. Insurance of Accounts. The FDIC provides insurance, through the BIF, to deposit accounts at the Bank to a maximum of $100,000 for each insured depositor. On January 1, 1996, the FDIC adopted an amendment to its BIF risk-based assessment schedule which effectively eliminated deposit insurance assessments for most commercial banks and other depository institutions with deposits insured by the BIF only. Following enactment of EGRPRA, the overall assessment rate for 1998 for institutions in the lowest risk-based premium category was revised to equal 1.26 cents for each $100 of BIF-assessable deposits. Deposits insured by the SAIF continue to be assessed at a higher rate. At this time, the deposit insurance assessment rate for institutions in the lowest risk-based premium category is zero, and all of the assessments paid by institutions in this category are used to service debt issued by the Financing Corporation, a federal agency established to finance the recapitalization of the former Federal Savings and Loan Insurance Corporation. Regulations Governing Capital Adequacy. The federal bank regulatory agencies use capital adequacy guidelines in their examination and regulation of bank holding companies and banks. If the capital falls below the minimum levels established by these guidelines, the bank holding company or bank may be denied approval to acquire or establish additional banks or nonbank businesses or to open facilities. The Federal Reserve and the FDIC adopted risk-based capital guidelines for banks and bank holding companies that are designed to make regulatory capital requirements more sensitive to differences in risk profile among banks and bank holding companies, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items are assigned to broad risk categories, each with 8 9 appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. Under these guidelines, all bank holding companies and federally regulated banks must maintain a minimum risk-based total capital ratio equal to 8%, of which at least one-half must be Tier 1 capital. The Federal Reserve also has implemented a leverage ratio, which is Tier 1 capital to total assets, to be used as a supplement to the risk-based guidelines. The principal objective of the leverage ratio is to place a constraint on the maximum degree to which a bank holding company may leverage its equity capital base. The Federal Reserve requires a minimum leverage ratio of 3%. For all but the most highly-rated bank holding companies and for bank holding companies seeking to expand, however, the Federal Reserve expects that additional capital sufficient to increase the ratio by at least 100 to 200 basis points will be maintained. Management of the Company believes that the risk-weighting of assets and the risk-based capital guidelines do not have a material adverse impact on the Company's operations or on the operations of the Bank. Community Reinvestment Act. The Community Reinvestment Act of 1977 requires that, in connection with examinations of financial institutions within their jurisdiction, the federal banking regulators must evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those banks. These factors are also considered in evaluating mergers, acquisitions and applications to open a branch or facility. Regulations Governing Extensions of Credit. The Bank is subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to the bank holding company or its subsidiaries, or investments in their securities and on the use of their securities as collateral for loans to any borrowers. These regulations and restrictions may limit the ability of the Company to obtain funds from the Bank for its cash needs, including funds for acquisitions and for payment of dividends, interest and operating expenses. Further, under the BHCA and certain regulations of the Federal Reserve, a bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with any extension of credit, lease or sale of property or furnishing of services. The Bank is also subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to executive officers, directors, principal shareholders or any related interest of such persons. Extensions of credit (i) must be made on substantially the same terms, including interest-rates and collateral as, and following credit underwriting procedures that are not less stringent than, those prevailing at the time for comparable transactions with persons not covered above and who are not employees, and (ii) must not involve more than the normal risk of repayment or present other unfavorable features. The Bank is also subject to certain lending limits and restrictions on overdrafts to such persons. Reserve Requirements. The Federal Reserve requires all depository institutions to maintain reserves against their transaction accounts and non-personal time deposits. Reserves of 3% must be maintained against total transaction accounts of $49.3 million or less (subject to adjustment by the Federal Reserve) and an initial reserve of $1,479,000 plus 10% (subject to adjustment by the Federal Reserve to a level between 8% and 14%) must be maintained against that portion of total transaction accounts in excess of such amount. The balances maintained to meet the reserve requirements imposed by the Federal Reserve may be used to satisfy liquidity requirements. Dividends. The ability of the Bank to pay dividends and management fees is limited by various state and federal laws, by the regulations promulgated by its primary regulators and by the principles of prudent bank management. 9 10 Monetary Policy and Economic Control. The commercial banking business in which the Company engages is affected not only by general economic conditions, but also by the monetary policies of the Federal Reserve. Changes in the discount rate on member bank borrowing, availability of borrowing at the "discount window," open market operations, the imposition of changes in reserve requirements against member banks deposits and assets of foreign branches, and the imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates are some of the instruments of monetary policy available to the Federal Reserve. These monetary policies are used in varying combinations to influence overall growth and distributions of bank loans, investments and deposits, and such use may affect interest rates charged on loans or paid on deposits. The monetary policies of the Federal Reserve have had a significant effect on the operating results of commercial banks and are expected to do so in the future. The monetary policies of the Federal Reserve are influenced by various factors, including inflation, unemployment, short-term and long-term changes in the international trade balance and in the fiscal policies of the U.S. Government. Future monetary policies and the effect of such policies on the future business and earnings of the Company and the Bank cannot be predicted. FORWARD LOOKING STATEMENTS Statements contained in this Report and in future filings by the Company with the Securities and Exchange Commission, in the Company's press releases and in oral statements made with the approval of an authorized executive officer which are not historical or current facts are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended). There can be no assurance, in light of these risks and uncertainties, that such forward-looking statements will in fact transpire. The following important factors, risks and uncertainties, among others, could cause actual results to differ materially from such forward-looking statements: * Credit risk: While the Company has had excellent credit quality in recent years, approximately 62% of its loans at December 31, 1997 were in commercial, financial, agricultural and transportation and equipment loans. Changes in local economic conditions could adversely affect credit quality in the Company's local business loan portfolio, while national regulatory or economic condition changes could negatively impact the quality of the transportation and equipment portfolio. * Interest rate risk: Although the Company actively manages its interest rate sensitivity, such management is not an exact science. Rapid increases or decreases in interest rates could adversely impact the Company's net interest margin if changes in its cost of funds do not correspond to the changes in income yields. Such fluctuations could also negatively impact the Company's mortgage banking operations, which are very interest rate sensitive, by increasing the runoff rates in the servicing portfolio, reducing loan origination activities, or increasing its funding costs. * Competition: The Company's activities in both its local and national niche businesses involve competition with other banks as well as other financial institutions and enterprises. Also, the financial service markets have and likely will continue to experience substantial changes, which could significantly change the Company's competitive environment in the future. * Retail expansion: The Company's planned future growth includes an emphasis on retail expansion, with the ten new branches opened in 1996, three in 1997, and those to be opened in 1998 and beyond. This expansion has and will continue to increase the Company's operating costs. The Company needs to achieve the revenue growth anticipated from this expansion in order to maintain its efficiency and profitability trends in future years. 10 11 * Legislative and regulatory environment: The Company operates in a rapidly changing legislative and regulatory environment. It cannot be predicted how or to what extent future developments in these areas will affect the Company. These developments could negatively impact the Company through increased operating expenses for compliance with new laws and regulations, restricted access to new products and markets, or in other ways. * General business and economic trends: These factors, including the impact of inflation levels, influence the Company's results in numerous ways, including operating expense levels, deposit and loan activity, and availability of trained individuals needed for future growth. The foregoing list should not be construed as exhaustive and the Company disclaims any obligation to subsequently update or revise any forward-looking statements after the date of this Report. 11 12 ITEM 1. BUSINESS (Continued) SELECTED STATISTICAL INFORMATION Distribution of Assets, Liabilities and Shareholders' Equity Interest Rates and Interest Differential (Dollars in Thousands)
Year ended December 31, 1997 1996 1995 --------------------------- -------------------------- --------------------------- Interest Interest Interest Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/ Balance Expense Rate Balance Expense Rate Balance Expense Rate --------------------------- -------------------------- --------------------------- ASSETS: Investment securities: Taxable $ 272,400 $ 16,638 6.11% $ 254,033 $ 15,337 6.04% $ 244,567 $ 15,184 6.21% Tax-exempt 151,686 11,723 7.73% 146,176 11,787 8.06% 129,409 11,285 8.72% Net loans 1,610,889 148,061 9.19% 1,348,089 124,467 9.23% 1,172,438 111,115 9.48% Other investments 11,662 592 5.08% 18,757 995 5.30% 23,289 1,337 5.74% ---------- -------- ---- ---------- -------- ---- ---------- -------- ---- Total Earning Assets 2,046,637 177,014 8.65% 1,767,055 152,586 8.64% 1,569,703 138,921 8.85% Cash and due from banks 73,246 75,378 72,647 Reserve for loan losses (31,966) (28,482) (26,081) Other assets 110,383 81,263 70,291 ---------- ---------- ---------- Total $2,198,300 $1,895,214 $1,686,560 ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY: Interest bearing deposits $1,488,287 $73,150 4.92% $1,337,345 $64,214 4.80% $1,181,219 $56,185 4.76% Short-term borrowings 227,757 13,014 5.71% 156,003 7,843 5.03% 135,373 6,938 5.13% Long-term debt 16,527 1,160 7.02% 19,876 1,372 6.90% 23,302 1,823 7.82% Total Interest Bearing Liabilities 1,732,571 87,324 5.04% 1,513,224 73,429 4.85% 1,339,894 64,946 4.85% ---------- ------- ---- ---------- ------- ---- ---------- ------- ---- Noninterest bearing deposits 210,686 186,804 173,234 Other liabilities 72,500 33,862 30,765 Shareholders' equity 182,543 161,324 142,667 ---------- ---------- ---------- Total $2,198,300 $1,895,214 $1,686,560 ========== ========== ========== ------- ------- ------- Net Interest Income $89,690 $79,157 $73,975 ======= ======= ======= Net Yield on Earning Assets on ---- ---- ---- a Taxable Equivalent Basis 4.38% 4.48% 4.71% ==== ==== ==== Interest income including the effects of taxable equivalent adjustments, using a 40.525% rate. Tax equivalent adjustments were $3,536 in 1997, $3,635 in 1996 and $3,635 in 1995. Loan income includes fees on loans of $4,097 in 1997, $3,136 in 1996 and $2,739 in 1995. Loan income also includes the effects of taxable equivalent adjustments, using a 40.525% rate. Tax equivalent adjustments were $162 in 1997, $131 in 1996 and $171 in 1995. For purposes of this computation, nonaccruing loans are included in the daily average loan amounts outstanding.
12 13 ITEM 1. BUSINESS (Continued) The following table sets forth for the periods indicated a summary of the changes in interest earned and interest paid, resulting from changes in volume and changes in rates:
Increase (Decrease) Due to -------------------------------------------- Volume Rate Net ---------- -------- ------- (In Thousands) 1997 compared to 1996 Interest earned on: Loans $23,782 $ (405) $23,377 Investment securities: Taxable 1,367 151 1,518 Tax-exempt 607 (671) (64) Interest-bearing deposits with other banks (53) (62) (115) Federal funds sold and other money market investments (316) 28 (288) ------- ------- ------- Total Earning Assets $25,387 $ (959) $24,428 Interest paid on: Savings deposits 91 (419) (328) Other time deposits 8,688 576 9,264 Short-term borrowings 3,999 1,172 5,171 Long-term debt (232) 20 (212) ------- ------- ------- Total Interest-Bearing Liabilities 12,546 1,349 13,895 ------- ------- ------- Net Interest Income $12,841 $(2,308) $10,533 ======= ======= ======= 1996 compared to 1995 Interest earned on: Loans $16,516 $(2,947) $13,569 Investment securities: Taxable 391 (455) (64) Tax-exempt 1,201 (699) 502 Interest-bearing deposits with other banks 88 36 124 Federal funds sold and other money market investments (361) (105) (466) ------- ------- ------- Total Earning Assets 17,835 (4,170) 13,665 Interest paid on: Savings deposits (44) (42) (86) Other time deposits 8,938 (823) 8,115 Short-term borrowings 1,037 (132) 905 Long-term debt (255) (196) (451) ------- ------- ------- Total Interest-Bearing Liabilities 9,676 (1,193) 8,483 ------- ------- ------- Net Interest Income $ 8,159 $(2,977) $ 5,182 ======= ======= ======= The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion to the relationship of the absolute dollar amounts of the change in each.
13 14 ITEM 1. BUSINESS (Continued) INVESTMENT PORTFOLIO The carrying amounts of investment securities at the dates indicated are summarized as follows:
December 31 ------------------------------- 1997 1996 1995 -------- -------- -------- (In Thousands) U.S. Treasury and government agencies and corporations $228,884 $253,434 $239,658 States and political subdivisions 148,228 150,044 140,319 Other 37,796 19,618 16,398 -------- -------- -------- Total $414,908 $423,096 $396,375
The following table shows the maturities of investment securities at December 31, 1997, at the carrying amounts and the weighted average yields (for tax-exempt obligations on a fully taxable basis assuming a 40.525% tax rate) of such securities. 14 15 ITEM 1. BUSINESS (Continued)
Maturing -------------------------------------------------------------------------------------- After One After Five Within But Within But Within After One Year Five Years Ten Years Ten Years -------------- --------------- --------------- ---------------- Amount Yield Amount Yield Amount Yield Amount Yield ------ ----- ------ ----- ------ ----- ------ ----- (Dollars in Thousands) U.S. Treasury and government agencies and corporations $77,994 5.66% $ 83,113 6.02% $ 6,096 6.02% $ 61,681 6.15% States and political subdivisions 19,776 6.98% 59,517 7.33% 57,612 8.41% 11,323 7.32% Other 120 6.76% 4,865 6.37% 1,953 7.14% 30,858 5.26% ------- ---- -------- ---- ------- ---- -------- ---- Total $97,890 5.93% $147,495 6.56% $65,661 8.15% $103,862 6.01%
============================================================================ Weighted average yields on tax-exempt obligations have been computed by adjusting tax-exempt income to a fully taxable equivalent basis, excluding the effect of the tax preference interest expense adjustments. LOAN PORTFOLIO The following table shows the Company's loan distribution at the end of each of the last five years for December 31:
1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- (Dollars in Thousands) Domestic Loans: Transportation and equipment $ 752,677 $ 561,042 $ 457,930 $ 358,128 $ 382,483 Commercial, financial and agricultural 364,391 335,192 314,421 293,171 256,467 Real estate 568,136 468,109 408,028 377,532 316,758 Installment 111,577 91,220 79,036 71,882 64,105 ---------- ---------- ---------- ---------- ---------- Total Domestic Loans $1,796,781 $1,455,563 $1,259,415 $1,100,713 $1,019,813 ========== ========== ========== ========== ==========
15 16 ITEM 1. BUSINESS (Continued) LOAN PORTFOLIO (Continued) The following table shows the rate sensitivity of loans (excluding residential mortgages for 1-4 family residences, installment loans and lease financing) outstanding as of December 31, 1997. The amounts due after one year are also classified according to the sensitivity to changes in interest rates.
Rate Sensitivity ---------------------------------------------------------------- Within After One But After One Year Within Five Years Five Year Total -------- ----------------- --------- ---------- (In Thousands) Transportation and equipment $422,833 $312,180 $ 7,317 $ 742,330 Commercial, financial and agricultural 263,019 45,392 5,210 313,621 Real Estate 196,261 30,459 9,099 235,819 -------- -------- ------- ---------- Total $882,113 $388,031 $21,626 $1,291,770 ======== ======== ======= ==========
Rate Sensitivity ---------------------------- Fixed Variable Rate Rate -------- -------- Due after one year but within five years $376,874 $11,157 Due after five years 9,471 12,155 -------- ------- Total $386,345 $23,312 ======== =======
The following table summarizes the nonaccrual, past due and restructured loans:
December 31 ------------------------------------------------------------ 1997 1996 1995 1994 1993 ------ ------ ------ ------ ------ (Dollars in Thousands) Nonaccrual Loans $10,030 $6,678 $4,893 $3,314 $3,175 Accruing loans past due 90 days or more 730 557 274 477 494 Restructured loans -- -- -- 133 667 ------- ------ ------ ------ ------ Total Nonperforming Loans $10,760 $7,235 $5,167 $3,924 $4,336 ======= ====== ====== ====== ======
16 17 ITEM 1. BUSINESS (Continued) LOAN PORTFOLIO (Concluded) Information with respect to nonaccrual and restructured loans at December 31, 1997 and 1996 is as follows:
December 31 -------------------- 1997 1996 ------ ------ (In Thousands) Nonaccrual loans $10,030 $6,678 Interest income which would have been recorded under original terms 1,173 813 Interest income recorded during the period 387 280
At December 31, 1997, $9,561,000 of the nonaccrual loans are collateralized. Potential Problem Loans - ----------------------- At December 31, 1997, management was not aware of any potential problem loans that would have a material affect on loan delinquency or loan charge-offs. Loans are subject to constant review and are given management's attention whenever a problem situation appears to be developing. Loan Concentrations - ------------------- At December 31, 1997, 18.9% of total business loans were concentrated with borrowers in truck and automobile leasing companies. Loans to air transportation and aircraft dealers accounted for 12.7% of all business loans at December 31, 1997. 17 18 ITEM 1. BUSINESS (Continued) SUMMARY OF LOAN LOSS EXPERIENCE The following table summarizes the Company's loan loss experience for each of the last five years:
December 31 -------------------------------------------------------------- 1997 1996 1995 1994 1993 ---------- ---------- ---------- ---------- ---------- (In Thousands) Amount of loans outstanding at end of period $1,796,781 $1,455,563 $1,259,415 $1,100,713 $1,019,813 ========== ========== ========== ========== ========== Average amount of net loans outstanding during period $1,610,889 $1,348,489 $1,172,438 $1,066,752 $ 986,958 ========== ========== ========== ========== ========== Balance of reserve for loan losses at beginning of period $ 29,516 $ 27,470 $ 23,868 $ 22,350 $ 19,141 Charge-offs: Transportation and equipment 317 347 36 29 560 Commercial, financial and agricultural 293 2,385 985 1,007 809 Real Estate 157 230 597 816 92 Installment 643 324 372 205 560 ---------- ---------- ---------- ---------- ---------- Total charge-offs 1,410 3,286 1,990 2,057 2,021 ---------- ---------- ---------- ---------- ---------- Recoveries: Transportation and equipment 917 593 2,224 225 699 Commercial, financial and agricultural 101 383 287 166 359 Real estate 87 359 122 215 362 Installment 161 172 202 214 277 ---------- ---------- ---------- ---------- ---------- Total recoveries 1,266 1,507 2,835 820 1,697 ---------- ---------- ---------- ---------- ---------- Net charge-offs (recoveries) 144 1,779 (845) 1,237 324 Additions charged to operating expense 6,052 4,649 2,757 4,197 3,533 Recaptured reserve due to loan securitization -- (824) -- (1,442) -- ---------- ---------- ---------- ---------- ---------- Balance at end of period $ 35,424 $ 29,516 $ 27,470 $ 23,868 $ 22,350 ========== ========== ========== ========== ========== Ratio of net charge-offs (recoveries) to average net loans outstanding 0.01% 0.13% (0.07%) 0.12% 0.03%
18 19 The Company's reserve for loan losses is provided for by direct charges to operations. Losses on loans are charged against the reserve and likewise, recoveries during the period for prior losses are credited to the reserve. The loss reserve is maintained at a level considered by management to be adequate to absorb possible losses from loans presently outstanding. The provision made to this reserve is determined by management based on assessment of the risk factors affecting the loan portfolio, including general economic conditions, changes in the portfolio mix, past loan loss experience and the financial condition of the borrower. Management of the Company is constantly reviewing the status of the loan portfolio to identify borrowers that might develop financial problems, in order to aid borrowers in the handling of their accounts and to prevent sizable unexpected losses. In 1997, after management's assessment of loan quality, the Company made a charge of $6.05 million to operations as a provision for loan losses. At December 31, 1997, the reserve for loan losses was $35.42 million, or 1.97% of loans outstanding net of unearned discount. As of December 31, 1997, impaired loans totaled $9.39 million, of which $1.14 million had corresponding specific reserves for loan losses totaling $0.61 million. The remaining $8.25 million of impaired loans had no specific reserves for loan losses associated with them. The vast majority of the impaired loans are nonaccrual loans; interest is not recognized on nonaccrual loans subsequent to the date the loan is placed in nonaccrual status. Interest on the remainder of the impaired loans is recognized on an accrual basis. For 1997, the average recorded investment in impaired loans was $9.46 million and interest income recognized on impaired loans totaled $376,000. 19 20 ITEM 1. BUSINESS (Continued) SUMMARY OF LOAN LOSS EXPERIENCE (Concluded) The reserve for loan losses has been allocated according to the amount deemed necessary to provide for the possibility of losses being incurred within the categories of loans set forth in the table below. The amount of such components of the reserve at December 31, and the ratio of such loan categories to total outstanding loan balances, are as follows:
(Dollars in Thousands) 1997 1996 1995 1994 1993 ----------------- ----------------- ----------------- ----------------- ----------------- Percent Percent Percent Percent Percent Of Loans Of Loans Of Loans Of Loans Of Loans In Each In Each In Each In Each In Each Category Category Category Category Category Reserve to Total Reserve to Total Reserve to Total Reserve to Total Reserve to Total Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans ------- -------- ------- -------- ------- -------- ------- -------- ------- -------- Transportation and equipment $ 6,132 41.9% $ 4,553 38.5% $ 3,608 36.4% $ 2,917 32.5% $ 2,864 37.5% Commercial, financial and agricultural 2,864 20.3% 3,530 23.0% 3,396 25.0% 2,565 26.6% 3,011 25.1% Real estate 1,764 31.6% 1,360 32.2% 1,868 32.4% 2,060 34.4% 2,119 31.1% Installment 1,382 6.2% 1,212 6.3% 1,147 6.2% 1,166 6.5% 920 6.3% Unallocated $23,282 -- % 18,861 -- 17,451 -- 15,160 -- 13,436 -- ------- ----- ------- ----- ------- ----- ------- ----- ------- ----- Total $35,424 100.0% $29,516 100.0% $27,470 100.0% $23,868 100.0% $22,350 100.0% ======= ===== ======= ===== ======= ===== ======= ===== ======= =====
20 21 ITEM 1. BUSINESS (Continued) DEPOSITS The average daily amounts of deposits and rates paid on such deposits are summarized as follows:
Year Ended December 31 ------------------------------------------------------------------- 1997 1996 1995 ------------------- ------------------- ------------------- Amount Rate Amount Rate Amount Rate ---------- ---- ---------- ---- ---------- ---- Noninterest bearing demand deposits $ 210,685 -- % $ 186,804 -- % $ 173,234 -- % Interest bearing demand deposits 75,765 2.30% 135,328 2.21% 174,059 2.22% Savings deposits 341,777 2.52% 279,608 2.76% 242,504 2.85% Other time deposits 1,070,746 5.86% 922,409 5.80% 764,656 5.94% ---------- ---------- ---------- Total $1,698,973 $1,524,149 $1,354,453 ========== ========== ==========
The amount of time certificates of deposit of $100,000 or more and other time deposits of $100,000 or more outstanding at December 31, 1997, by time remaining until maturity is as follows (in thousands): Under 3 months $220,399 4 - 6 months 71,148 7 - 12 months 52,592 Over 12 months 65,464 -------- $409,603 ========
21 22 ITEM 1. BUSINESS (Continued) RETURN ON EQUITY AND ASSETS The ratio of net income to average shareholders' equity and average total assets, and certain other ratios, are presented below:
Year Ended December 31 ------------------------------------------------ 1997 1996 1995 ------ ------ ------ Percentage of net income to: Average shareholders' equity 14.51% 14.38% 14.75% Average total assets 1.21% 1.22% 1.25% Percentage of dividends declared per common share to diluted net income per common share 18.46% 18.18% 17.48% Percentage of average shareholders' equity to average total assets 8.30% 8.51% 8.46%
22 23 ITEM 1. BUSINESS (Concluded) SHORT-TERM BORROWINGS The following table shows the distribution of the Company's short-term borrowings and the weighted average interest rates thereon at the end of each of the last three years. Also provided are the maximum amount of borrowings and the average amount of borrowings in thousands, as well as weighted average interest rates for the last three years.
Federal Funds Purchased and Security Other Repurchase Commercial Short-Term Total 1997 Agreements Paper Borrowings Borrowings - ---------------------------- ------------- ---------- ---------- ---------- Balance at December 31, 1997 $117,987 $3,892 $113,127 $235,006 Maximum amount outstanding at any month-end 217,039 6,641 113,127 336,807 Average amount outstanding 136,208 5,321 86,228 227,757 Weighted average interest rate during the year 5.12% 5.46% 6.66% 5.71% Weighted average interest rate for outstanding amounts at December 31, 1997 5.00% 5.39% 6.08% 5.53% 1996 - ---------------------------- Balance at December 31, 1996 $112,580 $6,109 $106,174 $224,863 Maximum amount outstanding at any month-end 129,335 7,758 106,174 243,267 Average amount outstanding 94,171 5,082 56,751 156,004 Weighted average interest rate during the year 5.01% 5.13% 5.05% 5.03% Weighted average interest rate for outstanding amounts at December 31, 1996 5.10% 5.21% 5.99% 5.52% 1995 - ---------------------------- Balance at December 31, 1995 $101,166 $4,515 $ 47,298 $152,979 Maximum amount outstanding at any month-end 123,393 5,318 52,835 181,546 Average amount outstanding 96,091 4,369 34,913 135,373 Weighted average interest rate during the year 5.16% 5.61% 4.97% 5.13% Weighted average interest rate for outstanding amounts at December 31, 1995 5.13% 5.54% 6.84% 5.67%
Federal funds purchased and securities sold under agreements to repurchase generally mature within 1 to 30 days of the transaction date. Commercial paper and other short-term borrowings generally mature within 30 days. 23 24 ITEM 2. PROPERTIES 1st Source's headquarters building is located in downtown South Bend. In 1982, the land was leased from the City of South Bend on a 49-year lease, with a 50-year renewal option. The building is part of a larger complex, including a 300-room hotel and a 500-car parking garage. 1st Source sold the building and entered into a leaseback agreement with the purchaser for a term of 30 years. The bank building is a structure of approximately 160,000 square feet, with 1st Source and its subsidiaries occupying approximately 70% of the available office space, and approximately 30% presently subleased to unrelated tenants. The Company also owns property and/or buildings on which 28 of the bank subsidiary's 45 banking offices are located, including the facilities in Elkhart, LaPorte, Marshall, Porter, St. Joseph and Starke Counties in the state of Indiana, as well as a parking facility, two buildings housing drive-in banking plazas, a records retention facility, and a computer operations center. In 1995, the Company reacquired its former headquarters building through foreclosure. It is being refurbished for additional tenants and Company use. The remaining properties utilized by the subsidiary are leased from unrelated parties. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II - ------- ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information regarding common stock prices and dividends on page 17 of the annual shareholders report for the year ended December 31, 1997, is incorporated herein by reference. There were 1,165 shareholders of 1st Source Common Stock as of December 31, 1997. ITEM 6. SELECTED FINANCIAL DATA The information under the caption "Selected Consolidated Financial Data" on page 8 of the annual shareholders report for the year ended December 31, 1997, is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" on pages 7 through 17 of the annual shareholders report for the year ended December 31, 1997, is incorporated herein by reference. 1st Source cautions that any forward looking statements contained in this report, in a report incorporated by reference into this report or made by management of 1st Source involve risks and uncertainties and are subject to change based on various factors. Actual results could differ materially from those expressed or implied. 24 25 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The report of independent accountants and the consolidated financial statements of the Company and its subsidiaries are included on pages 18 through 41 in the annual shareholders report for the year ended December 31, 1997, and are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III - --------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information under the caption "Directors and Executive Officers" on pages 3 through 6 and under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" on page 16 of the proxy statement dated March 6, 1998, is incorporated herein by reference with respect to Directors. ITEM 11. EXECUTIVE COMPENSATION The information under the caption "Renumeration of Executive Officers" on pages 7 through 14 of the proxy statement dated March 6, 1998, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the caption "Voting Securities and Principal Holders Thereof" on page 2 and under the caption "Directors and Executive Officers" on pages 3 through 6 of the proxy statement dated March 6, 1998, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information in the last paragraph on page 5 and in the first two paragraphs on page 6 of the proxy statement dated March 6, 1998, is incorporated herein by reference. PART IV - ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) and (2) -- The response to this portion of Item 14 is submitted as a separate section of this report. (3) -- The response to this portion of Item 14 is submitted as a separate section of this report. (b) Reports on Form 8-K -- None filed during the fourth quarter of 1997. (c) Exhibits -- The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules -- None. 25 26 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 1st SOURCE CORPORATION - ---------------------- Registrant By: /s/ CHRISTOPHER J. MURPHY III ------------------------------------------------------ Christopher J. Murphy III President and a Director Date: January 20, 1998 --------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ ERNESTINE M. RACLIN, - --------------------------------------------------------- Ernestine M. Raclin, Chairman of the Board and a Director Date: January 20, 1998 --------------------------------------------------- /s/ CHRISTOPHER J. MURPHY III - --------------------------------------------------------- Christopher J. Murphy III, President and a Director (Principal Executive Officer) Date: January 20, 1998 --------------------------------------------------- /s/ VINCENT A . TAMBURO - --------------------------------------------------------- Vincent A. Tamburo, Secretary and General Counsel Date: January 20, 1998 --------------------------------------------------- /s/ LARRY E. LENTYCH - --------------------------------------------------------- Larry E. Lentych, Treasurer (Chief Financial and Accounting Officer) Date: January 20, 1998 --------------------------------------------------- 26 27 /s/ VINCE TAMBURO, P/A - --------------------------------------------------------- Reverend E. William Beauchamp, Director Date: January 20, 1998 --------------------------------------------------- /s/ PAUL R. BOWLES - --------------------------------------------------------- Paul R. Bowles, Director Date: January 20, 1998 --------------------------------------------------- /s/ PHILIP J. FACCENDA - --------------------------------------------------------- Philip J. Faccenda, Director Date: January 20, 1998 --------------------------------------------------- /s/ DANIEL B. FITZPATRICK - --------------------------------------------------------- Daniel B. Fitzpatrick, Director Date: January 20, 1998 --------------------------------------------------- /s/ LAWRENCE E. HILER - --------------------------------------------------------- Lawrence E. Hiler, Director Date: January 20, 1998 --------------------------------------------------- /s/ LEO J. MCKERNAN - --------------------------------------------------------- Leo J. McKernan, Director Date: January 20, 1998 --------------------------------------------------- /s/ WILLIAM P. JOHNSON - --------------------------------------------------------- William P. Johnson, Director Date: January 20, 1998 --------------------------------------------------- 27 28 /s/ REX MARTIN - --------------------------------------------------------- Rex Martin, Director Date: January 20, 1998 ---------------------------------------------------- /s/ DANE A. MILLER - --------------------------------------------------------- Dane A. Miller, Director Date: January 20, 1998 --------------------------------------------------- /s/ RICHARD J. PFEIL - --------------------------------------------------------- Richard J. Pfeil, Director Date: January 20, 1998 ---------------------------------------------------
28 29 ANNUAL REPORT ON FORM 10-K ITEM 14(a) (1) AND (2) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES YEAR ENDED DECEMBER 31, 1997 1ST SOURCE CORPORATION SOUTH BEND, INDIANA F-1 30 FORM 10-K -- ITEM 14(a) (1) and (2) 1st SOURCE CORPORATION AND SUBSIDIARIES LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following report of independent accountants and consolidated financial statements of 1st Source Corporation and subsidiaries, included in the annual report of the registrant to its shareholders for the year ended December 31, 1997, are incorporated by reference in Item 8: Report of independent accountants Consolidated statements of financial condition -- December 31, 1997 and 1996 Consolidated statements of income -- Years ended December 31, 1997, 1996 and 1995 Consolidated statements of shareholders' equity -- Years ended December 31, 1997, 1996 and 1995 Consolidated statements of cash flows -- Years ended December 31, 1997, 1996 and 1995 Notes to consolidated financial statements -- December 31, 1997, 1996 and 1995 Financial statement schedules required by Article 9 of Regulation S-X are not required under the related instructions, or are inapplicable and, therefore, have been omitted. F-2 31 ANNUAL REPORT ON FORM 10-K ITEM 14(a) (3) AND 14(c) LIST OF EXHIBITS YEAR ENDED DECEMBER 31, 1997 1ST SOURCE CORPORATION SOUTH BEND, INDIANA E-1 32 FORM 10-K -- Item 14(a) (3) and 14(c) 1st SOURCE CORPORATION AND SUBSIDIARIES LIST OF EXHIBITS 3(a) -- Articles of Incorporation of Registrant, as amended April 30, 1996, and filed as exhibit to Form 10-K, dated December 31, 1996, and incorporated herein by reference. 3(b) -- By-Laws of Registrant, as amended April 19, 1993, filed as exhibit to Form 10-K, dated December 31, 1993, and incorporated herein by reference. 4(a) -- Form of Common Stock Certificates of Registrant filed as exhibit to Registration Statement 2-40481 and incorporated herein by reference. Note: No long-term debt of the Registrant exceeds 10% of the consolidated total assets of the Registrant and its subsidiaries. In accordance with paragraph (4)(iii) of Item 601(b) of Regulation S-K, the Registrant will furnish the Commission upon request copies of long-term debt instruments and related agreements. 4(b)(1) -- Form of 9% Cumulative Trust Preferred Securities Indenture, dated March 21, 1997, filed as exhibit to Form 10-K, dated December 31, 1997, and attached hereto. 4(b)(2) -- Form of 9% Cumulative Trust Preferred Securities Trust Agreement, dated March 21, 1997, filed as exhibit to Form 10-K, dated December 31, 1997, and attached hereto. 4(b)(3) -- Form of 9% Cumulative Trust Preferred Securities Guarantee Agreement, dated March 21, 1997, filed as exhibit to Form 10-K, dated December 31, 1997, and attached hereto. 4(c)(1) -- Form of Floating Rate Cumulative Trust Preferred Securities Indenture, dated March 21, 1997, filed as exhibit to Form 10-K, dated December 31, 1997, and attached hereto. 4(c)(2) -- Form of Floating Rate Cumulative Trust Preferred Securities Trust Agreement, dated March 21, 1997, filed as exhibit to Form 10-K, dated December 31, 1997, and attached hereto. 4(c)(3) -- Form of Floating Rate Cumulative Trust Preferred Securities Guarantee Agreement, dated March 21, 1997, filed as exhibit to Form 10-K, dated December 31, 1997, and attached hereto. 10(a) -- Employment Agreement of Christopher J. Murphy III, as amended February 1, 1997, filed as exhibit to Form 10-K, dated December 31, 1997, and attached hereto. E-2 33 10(b) -- Form of Company's Employees' Money Purchase Pension Plan and Trust Agreement dated January 1, 1989, and amendment to the Company's Employees' Money Purchase Pension Plan and Trust dated April 1, 1994, filed as exhibit to Form 10-K dated December 31, 1994, and incorporated herein by reference. 10(c)(1) -- Form of Company's Employees' Profit Sharing Plan and Trust Agreement dated January 1, 1989, and amendment to the Company's Profit Sharing Plan and Trust Agreement dated April 1, 1994, filed as exhibit to Form 10-K dated December 31, 1994, and incorporated herein by reference. 10(c)(2) -- An amendment to 1st Source Corporation Employees' Profit Sharing Plan and Trust Agreement dated September 30, 1996, and filed as exhibit to Form 10-K, dated December 31, 1996, and incorporated herein by reference. 10(d) -- 1st Source Corporation Employee Stock Purchase Plan dated April 17, 1997, filed as exhibit to Form 10-K, dated December 31, 1997, and attached hereto. 10(e) -- 1st Source Corporation 1982 Executive Incentive Plan, amended April 19, 1988, and filed as exhibit to Form 10-K, dated December 31, 1988, and incorporated herein by reference. 10(f) -- 1st Source Corporation 1982 Restricted Stock Award Plan, as amended February 19, 1997, filed as exhibit to Form 10-K, dated December 31, 1997, and attached hereto. 10(h) -- 1st Source Corporation Non-Qualified Stock Option Agreement with Christopher J. Murphy III, dated January 1, 1992, as amended December 11, 1997, filed as exhibit to Form 10-K, dated December 31, 1997, and attached hereto. 10(i) -- 1st Source Corporation 1992 Stock Option Plan, dated April 23, 1992, as amended December 11, 1997, filed as exhibit to Form 10-K, dated December 31, 1997, and attached hereto. 13 -- Portions of Annual Report to Security Holders for the year ended December 31, 1997, attached hereto. 21 -- Subsidiaries of Registrant, attached hereto. 23 -- Consent of Independent Accountants, attached hereto. The exhibits included under exhibit 10 constitute all management contracts, compensatory plans and arrangements required to be filed as an exhibit to this form pursuant to Item 14(c) of this report.
E-3 EX-4.(B)(1) 2 FORM OF INDENTURE 1 EXHIBIT 4(b)(1) ============================================================================== 1ST SOURCE CORPORATION AND STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE INDENTURE 9.00% SUBORDINATED DEBENTURES DUE 2027 DATED AS OF MARCH 21, 1997. ============================================================================== 2 EXHIBIT 4(b)(1) TABLE OF CONTENTS
Page ---- ARTICLE I. DEFINITIONS 1 Section 1.1. Definitions of Terms 1 ARTICLE II. ISSUE, DESCRIPTION, TERMS, CONDITIONS REGISTRATION AND EXCHANGE OF DEBENTURES 8 Section 2.1. Designation and Principal Amount 8 Section 2.2. Maturity 8 Section 2.3. Form and Payment 9 Section 2.4. [Intentionally Omitted] 10 Section 2.5. Interest 10 Section 2.6. Execution and Authentications 10 Section 2.7. Registration of Transfer and Exchange 11 Section 2.8. Temporary Debentures 12 Section 2.9. Mutilated, Destroyed, Lost or Stolen Debentures 12 Section 2.10. Cancellation 13 Section 2.11. Benefit of Indenture 13 Section 2.12. Authentication Agent 13 ARTICLE III. REDEMPTION OF DEBENTURES 14 Section 3.1. Redemption 14 Section 3.2. Special Event Redemption 14 Section 3.3. Optional Redemption by Company 15 Section 3.4. Notice of Redemption 15 Section 3.5. Payment Upon Redemption 16 Section 3.6. No Sinking Fund 16 ARTICLE IV. EXTENSION OF INTEREST PAYMENT PERIOD 16 Section 4.1. Extension of Interest Payment Period 16 Section 4.2. Notice of Extension 17 Section 4.3. Limitation on Transactions 17 ARTICLE V. PARTICULAR COVENANTS OF COMPANY 18 Section 5.1. Payment of Principal and Interest 18 Section 5.2. Maintenance of Agency 18 Section 5.3. Paying Agents 18 Section 5.4. Appointment to Fill Vacancy in Office of Trustee 19 Section 5.5. Compliance with Consolidation Provisions 19 Section 5.6. Limitation on Transactions 19 Section 5.7. Covenants as to the Trust 20 Section 5.8. Covenants as to Purchases 20 i 3 EXHIBIT 4(b)(1) ARTICLE VI. DEBENTUREHOLDERS' LISTS AND REPORTS BY COMPANY AND TRUSTEE 20 Section 6.1. Company to Furnish Trustee Names and Addresses of Debentureholders 20 Section 6.2. Preservation of Information Communications with Debentureholders 21 Section 6.3. Reports by Company 21 Section 6.4. Reports by Trustee 22 ARTICLE VII. REMEDIES OF TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF DEFAULT 22 Section 7.1. Events of Default 22 Section 7.2. Collection of Indebtedness and Suits for Enforcement by Trustee 23 Section 7.3. Application of Moneys Collected 25 Section 7.4. Limitation on Suits 25 Section 7.5. Rights and Remedies Cumulative; Delay or Omission not Waiver 26 Section 7.6. Control by Debentureholders 26 Section 7.7. Undertaking to Pay Costs 26 ARTICLE VIII. FORM OF DEBENTURE AND ORIGINAL ISSUE 27 Section 8.1. Form of Debenture 27 Section 8.2. Original Issue of Debentures 27 ARTICLE IX. CONCERNING TRUSTEE 27 Section 9.1. Certain Duties and Responsibilities of Trustee 27 Section 9.2. Notice of Defaults 28 Section 9.3. Certain Rights of Trustee 29 Section 9.4. Trustee Not Responsible for Recitals, etc. 30 Section 9.5. May Hold Debentures 30 Section 9.6. Moneys Held in Trust 30 Section 9.7. Compensation and Reimbursement 30 Section 9.8. Reliance on Officers' Certificate 31 Section 9.9. Disqualification: Conflicting Interests 31 Section 9.10. Corporate Trustee Required; Eligibility 31 Section 9.11. Resignation and Removal; Appointment of Successor 31 Section 9.12. Acceptance of Appointment by Successor 33 Section 9.13. Merger, Conversion, Consolidation or Succession to Business 33 Section 9.14. Preferential Collection of Claims Against the Company 33 ARTICLE X. CONCERNING DEBENTUREHOLDERS 34 Section 10.1. Evidence of Action by Holders 34 Section 10.2. Proof of Execution by Debentureholders 34 Section 10.3. Who May be Deemed Owners 34 Section 10.4. Certain Debentures Owned by Company Disregarded 35 Section 10.5. Actions Binding on Future Debentureholders 35 ARTICLE XI. SUPPLEMENTAL INDENTURES 35 Section 11.1. Supplemental Indentures Without the Consent of Debentureholders 35 ii 4 EXHIBIT 4(b)(1) Section 11.2. Supplemental Indentures with Consent of Debentureholders 36 Section 11.3. Effect of Supplemental Indentures 37 Section 11.4. Debentures Affected by Supplemental Indentures 37 Section 11.5. Execution of Supplemental Indentures 37 ARTICLE XII. SUCCESSOR CORPORATION 38 Section 12.1. Company May Consolidate, etc 38 Section 12.2. Successor Corporation Substituted 38 Section 12.3. Evidence of Consolidation, etc. to Trustee 39 ARTICLE XIII. SATISFACTION AND DISCHARGE 39 Section 13.1. Satisfaction and Discharge of Indenture 39 Section 13.2. Discharge of Obligations 39 Section 13.3. Deposited Moneys to be Held in Trust 40 Section 13.4. Payment of Monies Held by Paying Agents 40 Section 13.5. Repayment to Company 40 ARTICLE XIV. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS 40 Section 14.1. No Recourse 40 ARTICLE XV. MISCELLANEOUS PROVISIONS 41 Section 15.1. Effect on Successors and Assigns 41 Section 15.2. Actions by Successor 41 Section 15.3. Surrender of Company Powers 41 Section 15.4. Notices 41 Section 15.5. Governing Law 41 Section 15.6. Treatment of Debentures as Debt 41 Section 15.7. Compliance Certificates and Opinions 42 Section 15.8. Payments on Business Days 42 Section 15.9. Conflict with Trust Indenture Act 42 Section 15.10. Counterparts 42 Section 15.11. Separability 42 Section 15.12. Assignment 43 Section 15.13. Acknowledgment of Rights 43 ARTICLE XVI. SUBORDINATION OF DEBENTURES 43 Section 16.1. Agreement to Subordinate 43 Section 16.2. Default on Senior Debt, Subordinated Debt or Additional Senior Obligations 43 Section 16.3. Liquidation; Dissolution; Bankruptcy 44 Section 16.4. Subrogation 45 Section 16.5. Trustee to Effectuate Subordination 46 Section 16.6. Notice by Company 46 Section 16.7. Rights of Trustee; Holders of Senior Indebtedness 46 Section 16.8. Subordination may not be Impaired 48
iii 5 EXHIBIT 4(b)(1) CROSS REFERENCE TABLE
SECTION OF TRUST INDENTURE ACT OF SECTION OF 1939, AS AMENDED INDENTURE ---------------- ---------- 310(a) 9.10 310(b) 9.9, 9.11 310(c) Not Applicable 311(a) 9.14 311(b) 9.14 311(c) Not Applicable 312(a) 6.1, 6.2(a) 312(b) 6.2(c) 312(c) 6.2(c) 313(a) 6.4(a) 313(b) 6.4(b) 313(c) 6.4(a), 6.4(b) 313(d) 6.4(c) 314(a) 6.3(a) 314(b) Not Applicable 314(c) 15.7 314(d) Not Applicable 314(e) 15.7 314(f) Not Applicable 315(a) 9.1(a), 9.3 315(b) 9.2 315(c) 9.1(a) 315(d) 9.1(b) 315(e) 7.7 316(a) 1.1, 7.6 316(b) 7.4(b) 316(c) 10.1(b) 317(a) 7.2 317(b) 5.3 318(a) 15.9 Note: This Cross-Reference Table does not constitute part of this Indenture and shall not affect the interpretation of any of its terms or provisions.
iv 6 EXHIBIT 4(b)(1) INDENTURE INDENTURE, dated as of March 21, 1997, between 1ST SOURCE CORPORATION, an Indiana corporation (the "Company"), and STATE STREET BANK AND TRUST COMPANY, a trust company duly organized and existing under the laws of the Commonwealth of Massachusetts, as trustee (the "Trustee"); RECITALS WHEREAS, for its lawful corporate purposes, the Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of securities to be known as its 9.00% Subordinated Debentures due 2027 (hereinafter referred to as the "Debentures"), the form and substance of such Debentures and the terms, provisions and conditions thereof to be set forth as provided in this Indenture; WHEREAS, 1st Source Capital Trust I, a Delaware statutory business trust (the "Trust"), has offered to the public $27,500,000 aggregate liquidation amount of its Preferred Securities (as defined herein) and proposes to invest the proceeds from such offering, together with the proceeds of the issuance and sale by the Trust to the Company of $850,525 aggregate liquidation amount of its Common Securities (as defined herein), in up to $28,350,525 aggregate principal amount of the Debentures; and WHEREAS, the Company has requested that the Trustee execute and deliver this Indenture; and WHEREAS, all requirements necessary to make this Indenture a valid instrument in accordance with its terms, and to make the Debentures, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company, have been performed, and the execution and delivery of this Indenture have been duly authorized in all respects; and WHEREAS, to provide the terms and conditions upon which the Debentures are to be authenticated, issued and delivered, the Company has duly authorized the execution of this Indenture; and WHEREAS, all things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, in consideration of the premises and the purchase of the Debentures by the holders thereof, it is mutually covenanted and agreed as follows for the equal and ratable benefit of the holders of the Debentures: ARTICLE I. DEFINITIONS SECTION 1.1. DEFINITIONS OF TERMS. The terms defined in this Section 1.1 (except as in this Indenture otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.1 and shall include the plural as well as the singular. All other terms used in this Indenture that are defined in the Trust Indenture Act, or that are by reference in the Trust Indenture Act defined in the Securities Act (except as herein otherwise expressly 7 EXHIBIT 4(b)(1) provided or unless the context otherwise requires), shall have the meanings assigned to such terms in the Trust Indenture Act and in the Securities Act as in force at the date of the execution of this instrument. All accounting terms used herein and not expressly defined shall have the meanings assigned to such terms in accordance with Generally Accepted Accounting Principles. "Accelerated Maturity Date" means if the Company elects to accelerate the Maturity Date in accordance with Section 2.2(c), the date selected by the Company which is prior to the Scheduled Maturity Date, but is after March 31, 2002. "Additional Interest" shall have the meaning set forth in Section 2.5. "Additional Senior Obligations" means all indebtedness of the Company whether incurred on or prior to the date of this Indenture or thereafter incurred, for claims in respect of derivative products such as interest and foreign exchange rate contracts, commodity contracts and similar arrangements; provided, however, that Additional Senior Obligations does not include claims in respect of Senior Debt or Subordinated Debt or obligations which, by their terms, are expressly stated to be not superior in right of payment to the Debentures or to rank pari passu in right of payment with the Debentures. For purposes of this definition, "claim" shall have the meaning assigned thereto in Section 101(4) of the United States Bankruptcy Code of 1978, as amended. "Administrative Trustees" shall have the meaning set forth in the Trust Agreement. "Affiliate" means, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities or other ownership interests of the specified Person; (b) any Person 10% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person; (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person; (d) a partnership in which the specified Person is a general partner; (e) any officer or director of the specified Person; and (f) if the specified Person is an individual, any entity of which the specified Person is an officer, director or general partner. "Authenticating Agent" means an authenticating agent with respect to the Debentures appointed by the Trustee pursuant to Section 2.12. "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company or any duly authorized committee of such Board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification. "Business Day" means, with respect to the Debentures, any day other than a Saturday or a Sunday 1 8 EXHIBIT 4(b)(1) or a day on which federal or state banking institutions in the Borough of Manhattan, The City of New York, are authorized or required by law, executive order or regulation to close, or a day on which the Corporate Trust Office of the Trustee or the Property Trustee is closed for business. "Capital Treatment Event" means the receipt by the Trust of an Opinion of Counsel, rendered by a law firm having a recognized banking law practice, to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such proposed change, pronouncement or decision is announced on or after the date of issuance of the Preferred Securities under the Trust Agreement, there is more than an insubstantial risk of impairment of the Company's ability to treat the aggregate liquidation amount of the Preferred Securities (or any substantial portion thereof) as Tier 1 capital (or the then equivalent thereof) for purposes of the capital adequacy guidelines of the Federal Reserve, as then in effect and applicable to the Company. "Certificate" means a certificate signed by the principal executive officer, the principal financial officer, the principal accounting officer, the treasurer or any vice president of the Company. The Certificate need not comply with the provisions of Section 15.7. "Change in 1940 Act Law" shall have the meaning set forth in the definition of "Investment Company Event." "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Securities" means undivided beneficial interests in the assets of the Trust which rank pari passu with the Preferred Securities; provided, however, that upon the occurrence of an Event of Default, the rights of holders of Common Securities to payment in respect of (i) distributions, and (ii) payments upon liquidation, redemption and otherwise, are subordinated to the rights of holders of Preferred Securities. "Company" means 1st Source Corporation, a corporation duly organized and existing under the laws of the State of Indiana, and, subject to the provisions of Article XII, shall also include its successors and assigns. "Compounded Interest" shall have the meaning set forth in Section 4.1. "Corporate Trust Office" means the office of the Trustee at which, at any particular time, its corporate trust business shall be principally administered, which office at the date hereof is located at Two International Place, 4th Floor, Boston Massachusetts 02110, Attention: Corporate Trust Department. "Coupon Rate" shall have the meaning set forth in Section 2.5. "Custodian" means any receiver, trustee, assignee, liquidator, or similar official under any 2 9 EXHIBIT 4(b)(1) Bankruptcy Law. "Debentures" shall have the meaning set forth in the Recitals hereto. "Debentureholder," "holder of Debentures," "registered holder," or other similar term, means the Person or Persons in whose name or names a particular Debenture shall be registered on the books of the Company or the Trustee kept for that purpose in accordance with the terms of this Indenture. "Debenture Register" shall have the meaning set forth in Section 2.7(b). "Debenture Registrar" shall have the meaning set forth in Section 2.7(b). "Debt" means with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (i) every obligation of such Person for money borrowed; (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person; (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business); (v) every capital lease obligation of such Person; and (vi) and every obligation of the type referred to in clauses (i) through (v) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable, directly or indirectly, as obligor or otherwise. "Default" means any event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default. "Deferred Interest" shall have the meaning set forth in Section 4.1. "Dissolution Event" means that as a result of the occurrence and continuation of a Special Event, the Trust is to be dissolved in accordance with the Trust Agreement and the Debentures held by the Property Trustee are to be distributed to the holders of the Trust Securities issued by the Trust pro rata in accordance with the Trust Agreement. "Distribution" shall have the meaning set forth in the Trust Agreement. "Event of Default" means, with respect to the Debentures, any event specified in Section 7.1, which has continued for the period of time, if any, and after the giving of the notice, if any, therein designated. "Exchange Act," means the Securities Exchange Act of 1934, as amended, as in effect at the date of execution of this instrument. "Extended Interest Payment Period" shall have the meaning set forth in Section 4.1. "Extended Maturity Date" means if the Company elects to extend the Maturity Date in accordance 3 10 EXHIBIT 4(b)(1) with Section 2.2(b), the date selected by the Company which is after the Scheduled Maturity Date but before March 31, 2046. "Federal Reserve" means the Board of Governors of the Federal Reserve System. "Generally Accepted Accounting Principles" means such accounting principles as are generally accepted at the time of any computation required hereunder. "Governmental Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged; or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America that, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such Governmental Obligation or a specific payment of principal of or interest on any such Governmental Obligation held by such custodian for the account of the holder of such depositary receipt; provided, however, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the Governmental Obligation or the specific payment of principal of or interest on the Governmental Obligation evidenced by such depositary receipt. "Herein," "hereof," and "hereunder," and other words of similar import, refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into in accordance with the terms hereof. "Interest Payment Date," shall have the meaning set forth in Section 2.5. "Investment Company Act" means the Investment Company Act of 1940, as amended, as in effect at the date of execution of this instrument. "Investment Company Event" means the receipt by the Trust of an Opinion of Counsel, rendered by a law firm having a recognized tax and securities law practice, to the effect that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), the Trust is or shall be considered an "investment company" that is required to be registered under the Investment Company Act, which Change in 1940 Act Law becomes effective on or after the date of original issuance of the Preferred Securities under the Trust Agreement. "Maturity Date" means the date on which the Debentures mature and on which the principal shall be due and payable together with all accrued and unpaid interest thereon including Compounded Interest and Additional Interest, if any. 4 11 EXHIBIT 4(b)(1) "Ministerial Action" shall have the meaning set forth in Section 3.2. "Officers' Certificate" means a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Controller or an Assistant Controller or the Secretary or an Assistant Secretary of the Company that is delivered to the Trustee in accordance with the terms hereof. Each such certificate shall include the statements provided for in Section 15.7, if and to the extent required by the provisions thereof. "Opinion of Counsel" means an opinion in writing of legal counsel, who may be an employee of or counsel for the Company, that is delivered to the Trustee in accordance with the terms hereof. Each such opinion shall include the statements provided for in Section 15.7, if and to the extent required by the provisions thereof. "Outstanding," when used with reference to the Debentures, means, subject to the provisions of Section 10.4, as of any particular time, all Debentures theretofore authenticated and delivered by the Trustee under this Indenture, except (a) Debentures theretofore canceled by the Trustee or any paying agent, or delivered to the Trustee or any paying agent for cancellation or that have previously been canceled; (b) Debentures or portions thereof for the payment or redemption of which moneys or Governmental Obligations in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall act as its own paying agent); provided, however, that if such Debentures or portions of such Debentures are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as in Article III provided, or provision satisfactory to the Trustee shall have been made for giving such notice; and (c) Debentures in lieu of or in substitution for which other Debentures shall have been authenticated and delivered pursuant to the terms of Section 2.7. "Paying Agent" means any paying agent or co-paying agent appointed pursuant to Section 5.3. "Person" means any individual, corporation, partnership, joint-venture, joint-stock company, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Debenture" means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such particular Debenture; and, for the purposes of this definition, any Debenture authenticated and delivered under Section 2.9 in lieu of a lost, destroyed or stolen Debenture shall be deemed to evidence the same debt as the lost, destroyed or stolen Debenture. "Preferred Securities" means undivided beneficial interests in the assets of the Trust which rank pari passu with Common Securities issued by the Trust; provided, however, that upon the occurrence of an Event of Default, the rights of holders of Common Securities to payment in respect of (i) distributions, and (ii) payments upon liquidation, redemption and otherwise, are subordinated to the rights of holders of Preferred Securities. "Preferred Securities Guarantee" means any guarantee that the Company may enter into with the Trustee or other Persons that operate directly or indirectly for the benefit of holders of Preferred Securities. 5 12 EXHIBIT 4(b)(1) "Property Trustee" has the meaning set forth in the Trust Agreement. "Responsible Officer" when used with respect to the Trustee means the Chairman of the Board of Directors, the President, any Vice President, the Secretary, the Treasurer, any trust officer, any corporate trust officer or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of his or her knowledge of and familiarity with the particular subject. "Scheduled Maturity Date" means March 31, 2027. "Securities Act," means the Securities Act of 1933, as amended, as in effect at the date of execution of this instrument. "Senior Debt" means the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not such claim for post-petition interest is allowed in such proceeding), on Debt, whether incurred on or prior to the date of this Indenture or thereafter incurred, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are not superior in right of payment to the Debentures or to other Debt which is pari passu with, or subordinated to, the Debentures; provided, however, that Senior Debt shall not be deemed to include (i) any Debt of the Company which when incurred and without respect to any election under section 1111(b) of the United States Bankruptcy Code of 1978, as amended, was without recourse to the Company; (ii) any Debt of the Company to any of its subsidiaries; (iii) Debt to any employee of the Company; (iv) Debt which by its terms is subordinated to trade accounts payable or accrued liabilities arising in the ordinary course of business to the extent that payments made to the holders of such Debt by the holders of the Debentures as a result of the subordination provisions of this Indenture would be greater than they otherwise would have been as a result of any obligation of such holders to pay amounts over to the obligees on such trade accounts payable or accrued liabilities arising in the ordinary course of business as a result of subordination provisions to which such Debt is subject; and (v) Debt which constitutes Subordinated Debt. "Senior Indebtedness" shall have the meaning set forth in Section 16.1. "Special Event" means a Tax Event, a Capital Treatment Event or an Investment Company Event. "Subordinated Debt" means the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not such claim for post-petition interest is allowed in such proceeding), on Debt, whether incurred on or prior to the date of this Indenture or thereafter incurred, which is by its terms expressly provided to be junior and subordinate to other Debt of the Company (other than the Debentures). "Subsidiary" means, with respect to any Person, (i) any corporation at least a majority of whose outstanding Voting Stock shall at the time be owned, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries; (ii) any general partnership, joint venture, trust or similar entity, at least a majority of whose outstanding partnership or similar interests shall 6 13 EXHIBIT 4(b)(1) at the time be owned by such Person, or by one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; and (iii) any limited partnership of which such Person or any of its Subsidiaries is a general partner. "Tax Event" means the receipt by the Trust of an Opinion of Counsel, rendered by a law firm having a recognized tax and securities practice, to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after the date of issuance of the Preferred Securities under the Trust Agreement, there is more than an insubstantial risk that (i) the Trust is, or shall be within 90 days after the date of such Opinion of Counsel, subject to United States federal income tax with respect to income received or accrued on the Debentures; (ii) interest payable by the Company on the Debentures is not, or within 90 days after the date of such Opinion of Counsel, shall not be, deductible by the Company, in whole or in part, for United States federal income tax purposes; or (iii) the Trust is, or shall be within 90 days after the date of such Opinion of Counsel, subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges. The Trust or the Company shall request and receive such Opinion of Counsel with regard to such matters within a reasonable period of time after the Trust or the Company shall have become aware of any of the events described in clauses (i) through (iii) above. "Trust" means 1st Source Capital Trust, a Delaware statutory business trust. "Trust Agreement" means the Amended and Restated Trust Agreement, dated March 21, 1997, of the Trust. "Trustee" means State Street Bank and Trust Company and, subject to the provisions of Article IX, shall also include its successors and assigns, and, if at any time there is more than one Person acting in such capacity hereunder, "Trustee" shall mean each such Person. "Trust Indenture Act," means the Trust Indenture Act of 1939, as amended, subject to the provisions of Sections 11.1, 11.2, and 12.1, as in effect at the date of execution of this instrument. "Trust Securities" means the Common Securities and Preferred Securities, collectively. "Voting Stock," as applied to stock of any Person, means shares, interests, participations or other equivalents in the equity interest (however designated) in such Person having ordinary voting power for the election of a majority of the directors (or the equivalent) of such Person, other than shares, interests, participations or other equivalents having such power only by reason of the occurrence of a contingency. ARTICLE II. ISSUE, DESCRIPTION, TERMS, CONDITIONS REGISTRATION AND EXCHANGE OF DEBENTURES SECTION 2.1. DESIGNATION AND PRINCIPAL AMOUNT. 7 14 EXHIBIT 4(b)(1) There is hereby authorized Debentures designated the "9.00% Subordinated Debentures due 2027," limited in aggregate principal amount to $28,350,525, which amount shall be as set forth in any written order of the Company for the authentication and delivery of Debentures pursuant to Section 2.6. SECTION 2.2. MATURITY. (a) The Maturity Date shall be either: (i) the Scheduled Maturity Date; or (ii) if the Company elects to extend the Maturity Date beyond the Scheduled Maturity Date in accordance with Section 2.2(b), the Extended Maturity Date; or (iii) if the Company elects to accelerate the Maturity Date to be a date prior to the Scheduled Maturity Date in accordance with Section 2.2(c), the Accelerated Maturity Date. (b) the Company may at any time before the day which is 90 days before the Scheduled Maturity Date, elect to extend the Maturity Date to the Extended Maturity Date, provided that the Company has received the prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve and further provided that the following conditions in this Section 2.2(b) are satisfied both at the date the Company gives notice in accordance with Section 2.2(d) of its election to extend the Maturity Date and at the Scheduled Maturity Date: (i) the Company is not in bankruptcy, otherwise insolvent or in liquidation; (ii) the Company is not in default in the payment of interest or principal on the Debentures; and (iii) the Trust is not in arrears on payments of Distributions on the Trust Securities issued by it and no deferred Distributions are accumulated. (c) the Company may at any time before the day which is 90 days before the Scheduled Maturity Date and after March 31, 2002, elect to shorten the Maturity Date only once to the Accelerated Maturity Date provided that the Company has received the prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. (d) if the Company elects to extend the Maturity Date in accordance with Section 2.2(b), the Company shall give notice to the registered holders of the Debentures, the Property Trustee and the Trust of the extension of the Maturity Date and the Extended Maturity Date at least 90 days and no more than 180 days before the Scheduled Maturity Date. (e) if the Company elects to accelerate the Maturity Date in accordance with Section 2.2(c), the 8 15 EXHIBIT 4(b)(1) the Company shall give notice to the registered holders of the Debentures, the Property Trustee and the Trust of the acceleration of the Maturity Date and the Accelerated Maturity Date at least 90 days and no more than 180 days before the Accelerated Maturity Date. SECTION 2.3. FORM AND PAYMENT. The Debentures shall be issued in fully registered certificated form without interest coupons. Principal and interest on the Debentures issued in certificated form shall be payable, the transfer of such Debentures shall be registrable and such Debentures shall be exchangeable for Debentures bearing identical terms and provisions at the office or agency of the Trustee; provided, however, that payment of interest may be made at the option of the Company by check mailed to the holder at such address as shall appear in the Debenture Register or by wire transfer to an account maintained by the holder as specified in the Debenture Register, provided that the holder provides proper transfer instructions by the regular record date. Notwithstanding the foregoing, so long as the holder of any Debentures is the Property Trustee, the payment of the principal of and interest (including Compounded Interest and Additional Interest, if any) on such Debentures held by the Property Trustee shall be made at such place and to such account as may be designated by the Property Trustee. SECTION 2.4. [INTENTIONALLY OMITTED]. SECTION 2.5. INTEREST. (a) Each Debenture shall bear interest at the rate of 9.00% per annum (the "Coupon Rate") from the original date of issuance until the principal thereof becomes due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the Coupon Rate, compounded quarterly, payable (subject to the provisions of Article IV) quarterly in arrears on March 31, June 30, September 30 and December 31 of each year (each, an "Interest Payment Date," commencing on June 30, 1997), to the Person in whose name such Debenture or any Predecessor Debenture is registered, at the close of business on the regular record date for such interest installment, which shall be the fifteenth day of the last month of the calendar quarter. (b) The amount of interest payable for any period shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of interest payable for any period shorter than a full quarterly period for which interest is computed shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on the Debentures is not a Business Day, then payment of interest payable on such date shall be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay) with the same force and effect as if made on the date such payment was originally payable. (c) If, at any time while the Property Trustee is the holder of any Debentures, the Trust or the Property Trustee is required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in any case, the Company shall pay as additional interest (the "Additional Interest") on the Debentures held by the Property Trustee, such additional amounts as shall be required so that the net amounts received and retained by the Trust and the Property Trustee after paying such taxes, duties, assessments or other 9 16 EXHIBIT 4(b)(1) governmental charges shall be equal to the amounts the Trust and the Property Trustee would have received had no such taxes, duties, assessments or other government charges been imposed. SECTION 2.6. EXECUTION AND AUTHENTICATIONS. (a) The Debentures shall be signed on behalf of the Company by its Chief Executive Officer, President or one of its Vice Presidents, under its corporate seal attested by its Secretary or one of its Assistant Secretaries. Signatures may be in the form of a manual or facsimile signature. The Company may use the facsimile signature of any Person who shall have been a Chief Executive Officer, President or Vice President thereof, or of any Person who shall have been a Secretary or Assistant Secretary thereof, notwithstanding the fact that at the time the Debentures shall be authenticated and delivered or disposed of such Person shall have ceased to be the Chief Executive Officer, President or a Vice President, or the Secretary or an Assistant Secretary of the Company. The seal of the Company may be in the form of a facsimile of such seal and may be impressed, affixed, imprinted or otherwise reproduced on the Debentures. The Debentures may contain such notations, legends or endorsements required by law, stock exchange rule or usage. Each Debenture shall be dated the date of its authentication by the Trustee. (b) A Debenture shall not be valid until manually authenticated by an authorized signatory of the Trustee, or by an Authenticating Agent. Such signature shall be conclusive evidence that the Debenture so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. (c) At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Debentures executed by the Company to the Trustee for authentication, together with a written order of the Company for the authentication and delivery of such Debentures signed by its Chief Executive Officer, President or any Vice President and its Treasurer or any Assistant Treasurer, and the Trustee in accordance with such written order shall authenticate and deliver such Debentures. (d) In authenticating such Debentures and accepting the additional responsibilities under this Indenture in relation to such Debentures, the Trustee shall be entitled to receive, and (subject to Section 9.1) shall be fully protected in relying upon, an Opinion of Counsel stating that the form and terms thereof have been established in conformity with the provisions of this Indenture. (e) The Trustee shall not be required to authenticate such Debentures if the issue of such Debentures pursuant to this Indenture shall affect the Trustee's own rights, duties or immunities under the Debentures and this Indenture or otherwise in a manner that is not reasonably acceptable to the Trustee. SECTION 2.7. REGISTRATION OF TRANSFER AND EXCHANGE. (a) Debentures may be exchanged upon presentation thereof at the office or agency of the Company designated for such purpose, or at the office of the Debenture Registrar, for other Debentures and for a like aggregate principal amount, upon payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, all as provided in this Section 2.7. In respect of any Debentures so surrendered for exchange, the Company shall execute, the Trustee shall authenticate and such office or agency shall deliver in exchange therefor the Debenture or Debentures that the Debentureholder making the exchange shall be 10 17 EXHIBIT 4(b)(1) entitled to receive, bearing numbers not contemporaneously outstanding. (b) The Company shall keep, or cause to be kept, at its office or agency designated for such purpose, or at the office of the Debenture Registrar, or such other location designated by the Company a register or registers (herein referred to as the "Debenture Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall register the Debentures and the transfers of Debentures as in this Article II provided and which at all reasonable times shall be open for inspection by the Trustee. The registrar for the purpose of registering Debentures and transfer of Debentures as herein provided shall initially be the Trustee and thereafter as may be appointed by the Company as authorized by Board Resolution (the "Debenture Registrar"). Upon surrender for transfer of any Debenture at the office or agency of the Company designated for such purpose, the Company shall execute, the Trustee shall authenticate and such office or agency shall deliver in the name of the transferee or transferees a new Debenture or Debentures for a like aggregate principal amount. All Debentures presented or surrendered for exchange or registration of transfer, as provided in this Section 2.7, shall be accompanied (if so required by the Company or the Debenture Registrar) by a written instrument or instruments of transfer, in form satisfactory to the Company or the Debenture Registrar, duly executed by the registered holder or by such holder's duly authorized attorney in writing. (c) No service charge shall be made for any exchange or registration of transfer of Debentures, or issue of new Debentures in case of partial redemption, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, other than exchanges pursuant to Section 2.8, Section 3.5(b) and Section 11.4 not involving any transfer. (d) The Company shall not be required (i) to issue, exchange or register the transfer of any Debentures during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of less than all the Outstanding Debentures and ending at the close of business on the day of such mailing; nor (ii) to register the transfer of or exchange any Debentures or portions thereof called for redemption. SECTION 2.8. TEMPORARY DEBENTURES. Pending the preparation of definitive Debentures, the Company may execute, and the Trustee shall authenticate and deliver, temporary Debentures (printed, lithographed, or typewritten). Such temporary Debentures shall be substantially in the form of the definitive Debentures in lieu of which they are issued, but with such omissions, insertions and variations as may be appropriate for temporary Debentures, all as may be determined by the Company. Every temporary Debenture shall be executed by the Company and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Debentures. Without unnecessary delay the Company shall execute and shall furnish definitive Debentures and thereupon any or all temporary Debentures may be surrendered in exchange therefor (without charge to the holders), at the office or agency of the Company designated for the purpose, and the Trustee shall authenticate and such office or agency shall deliver in exchange for such temporary Debentures an equal aggregate principal amount of definitive Debentures, unless the Company advises the Trustee to the effect that definitive Debentures need not be executed and furnished until further notice from the Company. Until so exchanged, the temporary Debentures shall be entitled to the same benefits under this Indenture as definitive Debentures authenticated and delivered hereunder. 11 18 EXHIBIT 4(b)(1) SECTION 2.9. MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES. (a) In case any temporary or definitive Debenture shall become mutilated or be destroyed, lost or stolen, the Company (subject to the next succeeding sentence) shall execute, and upon the Company's request the Trustee (subject as aforesaid) shall authenticate and deliver, a new Debenture bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Debenture, or in lieu of and in substitution for the Debenture so destroyed, lost or stolen. In every case the applicant for a substituted Debenture shall furnish to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and the Trustee evidence to their satisfaction of the destruction, loss or theft of the applicant's Debenture and of the ownership thereof. The Trustee may authenticate any such substituted Debenture and deliver the same upon the written request or authorization of the Chairman, President or any Vice-President and the Treasurer or any Assistant Treasurer of the Company. Upon the issuance of any substituted Debenture, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. In case any Debenture that has matured or is about to mature shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Debenture, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated Debenture) if the applicant for such payment shall furnish to the Company and the Trustee such security or indemnity as they may require to save them harmless, and, in case of destruction, loss or theft, evidence to the satisfaction of the Company and the Trustee of the destruction, loss or theft of such Debenture and of the ownership thereof. (b) Every replacement Debenture issued pursuant to the provisions of this Section 2.9 shall constitute an additional contractual obligation of the Company whether or not the mutilated, destroyed, lost or stolen Debenture shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debentures duly issued hereunder. All Debentures shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures, and shall preclude (to the extent lawful) any and all other rights or remedies, notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. SECTION 2.10. CANCELLATION. All Debentures surrendered for the purpose of payment, redemption, exchange or registration of transfer shall, if surrendered to the Company or any paying agent, be delivered to the Trustee for cancellation, or, if surrendered to the Trustee, shall be canceled by it, and no Debentures shall be issued in lieu thereof except as expressly required or permitted by any of the provisions of this Indenture. On request of the Company at the time of such surrender, the Trustee shall deliver to the Company canceled Debentures held by the Trustee. In the absence of such request the Trustee may dispose of canceled Debentures in accordance with its standard procedures and deliver a certificate of disposition to the Company. If the Company shall otherwise acquire any of the Debentures, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Debentures unless and until the same are delivered to the Trustee for cancellation. 12 19 EXHIBIT 4(b)(1) SECTION 2.11. BENEFIT OF INDENTURE. Nothing in this Indenture or in the Debentures, express or implied, shall give or be construed to give to any Person, other than the parties hereto and the holders of the Debentures (and, with respect to the provisions of Article XVI, the holders of Senior Indebtedness) any legal or equitable right, remedy or claim under or in respect of this Indenture, or under any covenant, condition or provision herein contained; all such covenants, conditions and provisions being for the sole benefit of the parties hereto and of the holders of the Debentures (and, with respect to the provisions of Article XVI, the holders of Senior Indebtedness). SECTION 2.12. AUTHENTICATION AGENT. (a) So long as any of the Debentures remain Outstanding there may be an Authenticating Agent for any or all such Debentures, which the Trustee shall have the right to appoint. Said Authenticating Agent shall be authorized to act on behalf of the Trustee to authenticate Debentures issued upon exchange, transfer or partial redemption thereof, and Debentures so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. All references in this Indenture to the authentication of Debentures by the Trustee shall be deemed to include authentication by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall be a corporation that has a combined capital and surplus, as most recently reported or determined by it, sufficient under the laws of any jurisdiction under which it is organized or in which it is doing business to conduct a trust business, and that is otherwise authorized under such laws to conduct such business and is subject to supervision or examination by federal or state authorities. If at any time any Authenticating Agent shall cease to be eligible in accordance with these provisions, it shall resign immediately. (b) Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time (and upon request by the Company shall) terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon resignation, termination or cessation of eligibility of any Authenticating Agent, the Trustee may appoint an eligible successor Authenticating Agent acceptable to the Company. Any successor Authenticating Agent, upon acceptance of its appointment hereunder, shall become vested with all the rights, powers and duties of its predecessor hereunder as if originally named as an Authenticating Agent pursuant hereto. ARTICLE III. REDEMPTION OF DEBENTURES SECTION 3.1. REDEMPTION. Subject to the Company having received prior approval of the Federal Reserve, if then required under the applicable capital guidelines or policies of the Federal Reserve, the Company may redeem the Debentures issued hereunder on and after the dates set forth in and in accordance with the terms of this Article III. SECTION 3.2. SPECIAL EVENT REDEMPTION. 13 20 EXHIBIT 4(b)(1) Subject to the Company having received the prior approval of the Federal Reserve, if then required under the applicable capital guidelines or policies of the Federal Reserve, if a Special Event has occurred and is continuing, then, notwithstanding Section 3.3, the Company shall have the right upon not less than 30 days nor more than 60 days notice to the holders of the Debentures to redeem the Debentures, in whole but not in part, for cash within 180 days following the occurrence of such Special Event (the "180-Day Period") at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest thereon to the date of such redemption (the "Redemption Price"), provided that if at the time there is available to the Company the opportunity to eliminate, within the 180-Day Period, a Tax Event by taking some ministerial action (a "Ministerial Action"), such as filing a form or making an election, or pursuing some other similar reasonable measure which has no adverse effect on the Company, the Trust or the holders of the Trust Securities issued by the Trust, the Company shall pursue such Ministerial Action in lieu of redemption, and, provided further, that the Company shall have no right to redeem the Debentures while it is pursuing any Ministerial Action pursuant to its obligations hereunder, and, provided further, that, if it is determined that the taking of a Ministerial Action would not eliminate the Tax Event within the 180-Day Period, the Company's right to redeem the Debentures shall be restored and it shall have no further obligations to pursue the Ministerial Action. The Redemption Price shall be paid prior to 12:00 noon, New York time, on the date of such redemption or such earlier time as the Company determines, provided that the Company shall deposit with the Trustee an amount sufficient to pay the Redemption Price by 10:00 a.m., New York time, on the date such Redemption Price is to be paid. SECTION 3.3. OPTIONAL REDEMPTION BY COMPANY. (a) Subject to the provisions of Section 3.3(b), except as otherwise may be specified in this Indenture, the Company shall have the right to redeem the Debentures, in whole or in part, from time to time, on or after March 31, 2002, at a Redemption Price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest thereon to the date of such redemption. Any redemption pursuant to this Section 3.3(a) shall be made upon not less than 30 days nor more than 60 days notice to the holder of the Debentures, at the Redemption Price. If the Debentures are only partially redeemed pursuant to this Section 3.3, the Debentures shall be redeemed pro rata or by lot or in such other manner as the Trustee shall deem appropriate and fair in its discretion. The Redemption Price shall be paid prior to 12:00 noon, New York time, on the date of such redemption or at such earlier time as the Company determines provided that the Company shall deposit with the Trustee an amount sufficient to pay the Redemption Price by 10:00 a.m., New York time, on the date such Redemption Price is to be paid. (b) If a partial redemption of the Debentures would result in the delisting of the Preferred Securities issued by the Trust from The Nasdaq Stock Market's National Market or any comparable level or successor listing or any national securities exchange or other organization on which the Preferred Securities are then listed or quoted, the Company shall not be permitted to effect such partial redemption and may only redeem the Debentures in whole. SECTION 3.4. NOTICE OF REDEMPTION. (a) In case the Company shall desire to exercise such right to redeem all or, as the case may be, a portion of the Debentures in accordance with the right reserved so to do, the Company shall, or shall cause the Trustee to upon receipt of 45 days' written notice from the Company (which notice shall, in the event of 14 21 EXHIBIT 4(b)(1) a partial redemption, include a representation to the effect that such partial redemption shall not result in the delisting of the Preferred Securities as described in Section 3.3(b) above), give notice of such redemption to holders of the Debentures to be redeemed by mailing, first class postage prepaid, a notice of such redemption not less than 30 days and not more than 60 days before the date fixed for redemption to such holders at their last addresses as they shall appear upon the Debenture Register unless a shorter period is specified in the Debentures to be redeemed. Any notice that is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the registered holder receives the notice. In any case, failure duly to give such notice to the holder of any Debenture designated for redemption in whole or in part, or any defect in the notice, shall not affect the validity of the proceedings for the redemption of any other Debentures. In the case of any redemption of Debentures prior to the expiration of any restriction on such redemption provided in the terms of such Debentures or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with any such restriction. Each such notice of redemption shall specify the date fixed for redemption and the Redemption Price and shall state that payment of the Redemption Price shall be made at the Corporate Trust Office, upon presentation and surrender of such Debentures, that interest accrued to the date fixed for redemption shall be paid as specified in said notice and that from and after said date interest shall cease to accrue. If less than all the Debentures are to be redeemed, the notice to the holders of the Debentures shall specify the particular Debentures to be redeemed. If the Debentures are to be redeemed in part only, the notice shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the redemption date, upon surrender of such Debenture, a new Debenture or Debentures in principal amount equal to the unredeemed portion thereof shall be issued. (b) If less than all the Debentures are to be redeemed, the Company shall give the Trustee at least 45 days' notice in advance of the date fixed for redemption as to the aggregate principal amount of Debentures to be redeemed, and thereupon the Trustee shall select, by lot or in such other manner as it shall deem appropriate and fair in its discretion, the portion or portions (equal to $25 or any integral multiple thereof) of the Debentures to be redeemed and shall thereafter promptly notify the Company in writing of the numbers of the Debentures to be redeemed, in whole or in part. The Company may, if and whenever it shall so elect pursuant to the terms hereof, by delivery of instructions signed on its behalf by its President or any Vice President, instruct the Trustee or any paying agent to call all or any part of the Debentures for redemption and to give notice of redemption in the manner set forth in this Section 3.4, such notice to be in the name of the Company or its own name as the Trustee or such paying agent may deem advisable. In any case in which notice of redemption is to be given by the Trustee or any such paying agent, the Company shall deliver or cause to be delivered to, or permit to remain with, the Trustee or such paying agent, as the case may be, such Debenture Register, transfer books or other records, or suitable copies or extracts therefrom, sufficient to enable the Trustee or such paying agent to give any notice by mail that may be required under the provisions of this Section 3.4. SECTION 3.5. PAYMENT UPON REDEMPTION. (a) If the giving of notice of redemption shall have been completed as above provided, the Debentures or portions of Debentures to be redeemed specified in such notice shall become due and payable on the date and at the place stated in such notice at the applicable Redemption Price, and interest on such Debentures or portions of Debentures shall cease to accrue on and after the date fixed for redemption, unless the Company shall default in the payment of such Redemption Price with respect to any such Debenture or 15 22 EXHIBIT 4(b)(1) portion thereof. On presentation and surrender of such Debentures on or after the date fixed for redemption at the place of payment specified in the notice, said Debentures shall be paid and redeemed at the Redemption Price (but if the date fixed for redemption is an interest payment date, the interest installment payable on such date shall be payable to the registered holder at the close of business on the applicable record date pursuant to Section 3.3). (b) Upon presentation of any Debenture that is to be redeemed in part only, the Company shall execute and the Trustee shall authenticate and the office or agency where the Debenture is presented shall deliver to the holder thereof, at the expense of the Company, a new Debenture of authorized denomination in principal amount equal to the unredeemed portion of the Debenture so presented. SECTION 3.6. NO SINKING FUND. The Debentures are not entitled to the benefit of any sinking fund. ARTICLE IV. EXTENSION OF INTEREST PAYMENT PERIOD SECTION 4.1. EXTENSION OF INTEREST PAYMENT PERIOD. So long as no Event of Default has occurred and is continuing, the Company shall have the right, at any time and from time to time during the term of the Debentures, to defer payments of interest by extending the interest payment period of such Debentures for a period not exceeding 20 consecutive quarters (the "Extended Interest Payment Period"), during which Extended Interest Payment Period no interest shall be due and payable; provided that no Extended Interest Payment Period may extend beyond the Maturity Date. Interest, the payment of which has been deferred because of the extension of the interest payment period pursuant to this Section 4.1, shall bear interest thereon at the Coupon Rate compounded quarterly for each quarter of the Extended Interest Payment Period (the "Compounded Interest"). At the end of the Extended Interest Payment Period, the Company shall calculate (and deliver such calculation to the Trustee) and pay all interest accrued and unpaid on the Debentures, including any Additional Interest and Compounded Interest (together, the "Deferred Interest") that shall be payable to the holders of the Debentures in whose names the Debentures are registered in the Debenture Register on the first record date after the end of the Extended Interest Payment Period. Before the termination of any Extended Interest Payment Period, the Company may further extend such period, provided that such period together with all such further extensions thereof shall not exceed 20 consecutive quarters, or extend beyond the Maturity Date of the Debentures. Upon the termination of any Extended Interest Payment Period and upon the payment of all Deferred Interest then due, the Company may commence a new Extended Interest Payment Period, subject to the foregoing requirements. No interest shall be due and payable during an Extended Interest Payment Period, except at the end thereof, but the Company may prepay at any time all or any portion of the interest accrued during an Extended Interest Payment Period. SECTION 4.2. NOTICE OF EXTENSION. (a) If the Property Trustee is the only registered holder of the Debentures at the time the Company 16 23 EXHIBIT 4(b)(1) selects an Extended Interest Payment Period, the Company shall give written notice to the Administrative Trustees, the Property Trustee and the Trustee of its selection of such Extended Interest Payment Period two Business Days before the earlier of (i) the next succeeding date on which Distributions on the Trust Securities issued by the Trust are payable; or (ii) the date the Trust is required to give notice of the record date, or the date such Distributions are payable, to The Nasdaq Stock Market's National Market or other applicable self-regulatory organization or to holders of the Preferred Securities issued by the Trust, but in any event at least one Business Day before such record date. (b) If the Property Trustee is not the only holder of the Debentures at the time the Company selects an Extended Interest Payment Period, the Company shall give the holders of the Debentures and the Trustee written notice of its selection of such Extended Interest Payment Period at least two Business Days before the earlier of (i) the next succeeding Interest Payment Date; or (ii) the date the Company is required to give notice of the record or payment date of such interest payment to The Nasdaq Stock Market's National Market or other applicable self-regulatory organization or to holders of the Debentures. (c) The quarter in which any notice is given pursuant to paragraphs (a) or (b) of this Section 4.2 shall be counted as one of the 20 quarters permitted in the maximum Extended Interest Payment Period permitted under Section 4.1. SECTION 4.3. LIMITATION ON TRANSACTIONS. If (i) the Company shall exercise its right to defer payment of interest as provided in Section 4.1; or (ii) there shall have occurred any Event of Default, then (a) the Company shall not declare or pay any dividend or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock (other than (i) dividends or distributions in common stock of the Company, or any declaration of a non-cash dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, and (ii) purchases of common stock of the Company related to the rights under any of the Company's benefit plans for its directors, officers or employees); (b) the Company shall not make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities issued by the Company which rank pari passu with or junior in interest to the Debentures; provided, however, that notwithstanding the foregoing the Company may make payments pursuant to its obligations under the Preferred Securities Guarantee; and (c) the Company shall not redeem, purchase or acquire less than all of the outstanding Debentures or any of the Preferred Securities. ARTICLE V. PARTICULAR COVENANTS OF COMPANY SECTION 5.1. PAYMENT OF PRINCIPAL AND INTEREST. The Company shall duly and punctually pay or cause to be paid the principal of and interest on the Debentures at the time and place and in the manner provided herein. Each such payment of the principal of or interest on the Debentures shall relate only to the Debentures, shall not be combined with any other payment of the principal of or interest on any other obligation of the Company, and shall be clearly and 17 24 EXHIBIT 4(b)(1) unmistakably identified as pertaining to the Debentures. SECTION 5.2. MAINTENANCE OF AGENCY. So long as any of the Debentures remain Outstanding, the Company shall maintain an office or agency at such location or locations as may be designated as provided in this Section 5.2, where (i) Debentures may be presented for payment; (ii) Debentures may be presented as hereinabove authorized for registration of transfer and exchange; and (iii) notices and demands to or upon the Company in respect of the Debentures and this Indenture may be given or served, such designation to continue with respect to such office or agency until the Company shall, by written notice signed by its President or a Vice President and delivered to the Trustee, designate some other office or agency for such purposes or any of them. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, notices and demands. The Company shall give the Trustee prompt written notice of any such designation or rescission thereof. SECTION 5.3. PAYING AGENTS. (a) The Trustee shall act as the Paying Agent. If the Company shall appoint one or more paying agents for the Debentures, other than the Trustee, the Company shall cause each such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 5.3: (i) that it shall hold all sums held by it as such agent for the payment of the principal of or interest on the Debentures (whether such sums have been paid to it by the Company or by any other obligor of such Debentures) in trust for the benefit of the Persons entitled thereto; (ii) that it shall give the Trustee notice of any failure by the Company (or by any other obligor of such Debentures) to make any payment of the principal of or interest on the Debentures when the same shall be due and payable; (iii) that it shall, at any time during the continuance of any failure referred to in the preceding paragraph (a)(ii) above, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and (iv) that it shall perform all other duties of Paying Agent as set forth in this Indenture. (b) If the Company shall act as its own Paying Agent with respect to the Debentures, it shall on or before each due date of the principal of or interest on such Debentures, set aside, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay such principal or interest so becoming due on Debentures until such sums shall be paid to such Persons or otherwise disposed of as herein provided and shall promptly notify the Trustee of such action, or any failure (by it or any other obligor on such Debentures) to take such action. Whenever the Company shall have one or more Paying Agents for the Debentures, it shall, prior to each due date of the principal of or interest on any Debentures, deposit with the 18 25 EXHIBIT 4(b)(1) Paying Agent a sum sufficient to pay the principal or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal or interest, and (unless such Paying Agent is the Trustee) the Company shall promptly notify the Trustee of this action or failure so to act. (c) Notwithstanding anything in this Section 5.3 to the contrary, (i) the agreement to hold sums in trust as provided in this Section 5.3 is subject to the provisions of Section 13.3 and 13.4; and (ii) the Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same terms and conditions as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. SECTION 5.4. APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, shall appoint, in the manner provided in Section 9.10, a Trustee, so that there shall at all times be a Trustee hereunder. SECTION 5.5. COMPLIANCE WITH CONSOLIDATION PROVISIONS. The Company shall not, while any of the Debentures remain outstanding, consolidate with, or merge into, or merge into itself, or sell or convey all or substantially all of its property to any other company unless the provisions of Article XII hereof are complied with. SECTION 5.6. LIMITATION ON TRANSACTIONS. If Debentures are issued to the Trust or a trustee of the Trust in connection with the issuance of Trust Securities by the Trust and (i) there shall have occurred any event that would constitute an Event of Default; (ii) the Company shall be in default with respect to its payment of any obligations under the Preferred Securities Guarantee relating to the Trust; or (iii) the Company shall have given notice of its election to defer payments of interest on such Debentures by extending the interest payment period as provided in this Indenture and such period, or any extension thereof, shall be continuing, then (a) the Company shall not declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock (other than (i) dividends or distributions in common stock of the Company, or any declaration of a non-cash dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, and (ii) purchases of common stock of the Company related to the rights under any of the Company's benefit plans for its directors, officers or employees); (b) the Company shall not make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities issued by the Company which rank pari passu with or junior in interest to the Debentures; provided, however, that the Company may make payments pursuant to its obligations under the Preferred Securities Guarantee; and (c) the Company shall not redeem, purchase or acquire less than all of the outstanding Debentures or any of the Preferred Securities. SECTION 5.7. COVENANTS AS TO THE TRUST. 19 26 EXHIBIT 4(b)(1) For so long as the Trust Securities of the Trust remain outstanding, the Company shall (i) maintain 100% direct or indirect ownership of the Common Securities of the Trust; provided, however, that any permitted successor of the Company under this Indenture may succeed to the Company's ownership of the Common Securities; (ii) not voluntarily terminate, wind up or liquidate the Trust, except upon prior approval of the Federal Reserve if then so required under applicable capital guidelines or policies of the Federal Reserve and use its reasonable efforts to cause the Trust (a) to remain a business trust, except in connection with a distribution of Debentures, the redemption of all of the Trust Securities of the Trust, or certain mergers, consolidations or amalgamations, each as permitted by the Trust Agreement; and (b) to otherwise continue not to be treated as an association taxable as a corporation or partnership for United States federal income tax purposes; and (iii) use its reasonable efforts to cause each holder of Trust Securities to be treated as owning an individual beneficial interest in the Debentures. In connection with the distribution of the Debentures to the holders of the Preferred Securities issued by the Trust upon a Dissolution Event, the Company shall use its best efforts to list such Debentures on The Nasdaq Stock Market's National Market or on such other exchange as the Preferred Securities are then listed. SECTION 5.8. COVENANTS AS TO PURCHASES. Except upon the exercise by the Company of its right to redeem the Debentures pursuant to Section 3.2 upon the occurrence and continuation of a Special Event, the Company shall not purchase any Debentures, in whole or in part, from the Trust prior to March 31, 2002. ARTICLE VI. DEBENTUREHOLDERS' LISTS AND REPORTS BY COMPANY AND TRUSTEE SECTION 6.1. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF DEBENTUREHOLDERS. The Company shall furnish or cause to be furnished to the Trustee (a) on a quarterly basis on each regular record date (as described in Section 2.5) a list, in such form as the Trustee may reasonably require, of the names and addresses of the holders of the Debentures as of such regular record date, provided that the Company shall not be obligated to furnish or cause to furnish such list at any time that the list shall not differ in any respect from the most recent list furnished to the Trustee by the Company (in the event the Company fails to provide such list on a quarterly basis, the Trustee shall be entitled to rely on the most recent list provided by the Company); and (b) at such other times as the Trustee may request in writing within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that, in either case, no such list need be furnished if the Trustee shall be the Debenture Registrar. SECTION 6.2. PRESERVATION OF INFORMATION COMMUNICATIONS WITH DEBENTUREHOLDERS. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Debentures contained in the most recent list furnished to it as provided in Section 6.1 and as to the names and addresses of holders of Debentures received by the Trustee in its capacity as Debenture Registrar for the Debentures (if acting in such capacity). 20 27 EXHIBIT 4(b)(1) (b) The Trustee may destroy any list furnished to it as provided in Section 6.1 upon receipt of a new list so furnished. (c) Debentureholders may communicate as provided in Section 312(b) of the Trust Indenture Act with other Debentureholders with respect to their rights under this Indenture or under the Debentures. SECTION 6.3. REPORTS BY COMPANY. (a) The Company covenants and agrees to file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) that the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of such sections, then to file with the Trustee and the Commission, in accordance with the rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports that may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations. (b) The Company covenants and agrees to file with the Trustee and the Commission, in accordance with the rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants provided for in this Indenture as may be required from time to time by such rules and regulations. (c) The Company covenants and agrees to transmit by mail, first class postage prepaid, or reputable over-night delivery service that provides for evidence of receipt, to the Debentureholders, as their names and addresses appear upon the Debenture Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to subsections (a) and (b) of this Section 6.3 as may be required by rules and regulations prescribed from time to time by the Commission. SECTION 6.4. REPORTS BY TRUSTEE. (a) On or before July 15 in each year in which any of the Debentures are Outstanding, the Trustee shall transmit by mail, first class postage prepaid, to the Debentureholders, as their names and addresses appear upon the Debenture Register, a brief report dated as of the preceding May 15, if and to the extent required under Section 313(a) of the Trust Indenture Act. (b) The Trustee shall comply with Section 313(b) and 313(c) of the Trust Indenture Act. (c) A copy of each such report shall, at the time of such transmission to Debentureholders, be filed by the Trustee with the Company, with each stock exchange upon which any Debentures are listed (if so listed) and also with the Commission. The Company agrees to notify the Trustee when any Debentures become listed on any stock exchange. 21 28 EXHIBIT 4(b)(1) ARTICLE VII. REMEDIES OF TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF DEFAULT SECTION 7.1. EVENTS OF DEFAULT. (a) Whenever used herein with respect to the Debentures, "Event of Default" means any one or more of the following events that has occurred and is continuing: (i) the Company defaults in the payment of any installment of interest upon any of the Debentures, as and when the same shall become due and payable, and continuance of such default for a period of 30 days; provided, however, that a valid extension of an interest payment period by the Company in accordance with the terms of this Indenture shall not constitute a default in the payment of interest for this purpose; (ii) the Company defaults in the payment of the principal on the Debentures as and when the same shall become due and payable whether at maturity, upon redemption, by declaration or otherwise; provided, however, that a valid extension of the maturity of such Debentures in accordance with the terms of this Indenture shall not constitute a default in the payment of principal; (iii) the Company fails to observe or perform any other of its covenants or agreements with respect to the Debentures for a period of 90 days after the date on which written notice of such failure, requiring the same to be remedied and stating that such notice is a "Notice of Default" hereunder, shall have been given to the Company by the Trustee, by registered or certified mail, or to the Company and the Trustee by the holders of at least 25% in principal amount of the Debentures at the time Outstanding; (iv) the Company pursuant to or within the meaning of any Bankruptcy Law (i) commences a voluntary case; (ii) consents to the entry of an order for relief against it in an involuntary case; (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property; or (iv) makes a general assignment for the benefit of its creditors; (v) a court of competent jurisdiction enters an order under any Bankruptcy Law that (i) is for relief against the Company in an involuntary case; (ii) appoints a Custodian of the Company for all or substantially all of its property; or (iii) orders the liquidation of the Company, and the order or decree remains unstayed and in effect for 90 days; or (vi) the Trust shall have voluntarily or involuntarily dissolved, wound-up its business or otherwise terminated its existence except in connection with (i) the distribution of Debentures to holders of Trust Securities in liquidation of their interests in the Trust; (ii) the redemption of all of the outstanding Trust Securities of the Trust; or (iii) certain mergers, consolidations or amalgamations, each as permitted by the Trust Agreement. (b) In each and every such case referred to in items (i) through (vi) of Section 7.1(a), unless the principal of all the Debentures shall have already become due and payable, either the Trustee or the holders 22 29 EXHIBIT 4(b)(1) of not less than 25% in aggregate principal amount of the Debentures then Outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by such Debentureholders) may declare the principal of all the Debentures to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, notwithstanding anything contained in this Indenture or in the Debentures. (c) At any time after the principal of the Debentures shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the holders of a majority in aggregate principal amount of the Debentures then Outstanding hereunder, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (i) the Company has paid or deposited with the Trustee a sum sufficient to pay all matured installments of interest upon all the Debentures and the principal of any and all Debentures that shall have become due otherwise than by acceleration (with interest upon such principal, and upon overdue installments of interest, at the rate per annum expressed in the Debentures to the date of such payment or deposit) and the amount payable to the Trustee under Section 9.7; and (ii) any and all Events of Default under this Indenture, other than the nonpayment of principal on Debentures that shall not have become due by their terms, shall have been remedied or waived as provided in Section 7.6. No such rescission and annulment shall extend to or shall affect any subsequent default or impair any right consequent thereon. (d) In case the Trustee shall have proceeded to enforce any right with respect to Debentures under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company and the Trustee shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company and the Trustee shall continue as though no such proceedings had been taken. SECTION 7.2. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE. (a) The Company covenants that (1) in case it shall default in the payment of any installment of interest on any of the Debentures, and such default shall have continued for a period of 90 Business Days; or (2) in case it shall default in the payment of the principal of any of the Debentures when the same shall have become due and payable, whether upon maturity of the Debentures or upon redemption or upon declaration or otherwise, then, upon demand of the Trustee, the Company shall pay to the Trustee, for the benefit of the holders of the Debentures, the whole amount that then shall have been become due and payable on all such Debentures for principal or interest, or both, as the case may be, with interest upon the overdue principal and (if the Debentures are held by the Trust or a trustee of the Trust, without duplication of any other amounts paid by the Trust or trustee in respect thereof) upon overdue installments of interest at the rate per annum expressed in the Debentures; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, and the amount payable to the Trustee under Section 9.7. (b) If the Company shall fail to pay such amounts set forth in Section 7.2(a) forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any action or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such 23 30 EXHIBIT 4(b)(1) judgment or final decree against the Company or other obligor upon the Debentures and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or other obligor upon the Debentures, wherever situated. (c) In case of any receivership, insolvency, liquidation, bankruptcy, reorganization, readjustment, arrangement, composition or judicial proceedings affecting the Company or the creditors or property thereof, the Trustee shall have power to intervene in such proceedings and take any action therein that may be permitted by the court and shall (except as may be otherwise provided by law) be entitled to file such proofs of claim and other papers and documents as may be necessary or advisable in order to have the claims of the Trustee and of the holders of the Debentures allowed for the entire amount due and payable by the Company under this Indenture at the date of institution of such proceedings and for any additional amount that may become due and payable by the Company after such date, and to collect and receive any moneys or other property payable or deliverable on any such claim, and to distribute the same after the deduction of the amount payable to the Trustee under Section 9.7; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the holders of the Debentures to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to such Debentureholders, to pay to the Trustee any amount due it under Section 9.7. (d) All rights of action and of asserting claims under this Indenture, or under any of the terms established with respect to Debentures, may be enforced by the Trustee without the possession of any of such Debentures, or the production thereof at any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for payment to the Trustee of any amounts due under Section 9.7, be for the ratable benefit of the holders of the Debentures. In case of an Event of Default hereunder, the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Nothing contained herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Debentureholder any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or the rights of any holder thereof or to authorize the Trustee to vote in respect of the claim of any Debentureholder in any such proceeding. SECTION 7.3. APPLICATION OF MONEYS COLLECTED. Any moneys collected by the Trustee pursuant to this Article VII with respect to the Debentures shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such moneys on account of principal or interest, upon presentation of the Debentures, and notation thereon of the payment, if only partially paid, and upon surrender thereof if fully paid: FIRST: To the payment of costs and expenses of collection and of all amounts payable to the Trustee under Section 9.7; SECOND: To the payment of all Senior Indebtedness of the Company if and to the extent 24 31 EXHIBIT 4(b)(1) required by Article XVI; and THIRD: To the payment of the amounts then due and unpaid upon the Debentures for principal and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Debentures for principal and interest, respectively. SECTION 7.4. LIMITATION ON SUITS. (a) No holder of any Debenture shall have any right by virtue or by availing of any provision of this Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (i) such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof with respect to the Debentures specifying such Event of Default, as hereinbefore provided; (ii) the holders of not less than 25% in aggregate principal amount of the Debentures then Outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as trustee hereunder; (iii) such holder or holders shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby; and (iv) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity, shall have failed to institute any such action, suit or proceeding; and (v) during such 60 day period, the holders of a majority in principal amount of the Debentures do not give the Trustee a direction inconsistent with the request. (b) Notwithstanding anything contained herein to the contrary or any other provisions of this Indenture, the right of any holder of the Debentures to receive payment of the principal of and interest on the Debentures, as therein provided, on or after the respective due dates expressed in such Debenture (or in the case of redemption, on the redemption date), or to institute suit for the enforcement of any such payment on or after such respective dates or redemption date, shall not be impaired or affected without the consent of such holder and by accepting a Debenture hereunder it is expressly understood, intended and covenanted by the taker and holder of every Debenture with every other such taker and holder and the Trustee, that no one or more holders of Debentures shall have any right in any manner whatsoever by virtue or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of the holders of any other of such Debentures, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Debentures. For the protection and enforcement of the provisions of this Section 7.4, each and every Debentureholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. SECTION 7.5. RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER. (a) Except as otherwise provided in Section 2.9, all powers and remedies given by this Article VII to the Trustee or to the Debentureholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any other powers and remedies available to the Trustee or the holders of the Debentures, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture or otherwise established with respect to such Debentures. 25 32 EXHIBIT 4(b)(1) (b) No delay or omission of the Trustee or of any holder of any of the Debentures to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein; and, subject to the provisions of Section 7.4, every power and remedy given by this Article VII or by law to the Trustee or the Debentureholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Debentureholders. SECTION 7.6. CONTROL BY DEBENTUREHOLDERS. The holders of a majority in aggregate principal amount of the Debentures at the time Outstanding, determined in accordance with Section 10.4, shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee; provided, however, that such direction shall not be in conflict with any rule of law or with this Indenture. Subject to the provisions of Section 9.1, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall, by a Responsible Officer or Officers of the Trustee, determine that the proceeding so directed would involve the Trustee in personal liability. The holders of a majority in aggregate principal amount of the Debentures at the time Outstanding affected thereby, determined in accordance with Section 10.4, may on behalf of the holders of all of the Debentures waive any past default in the performance of any of the covenants contained herein and its consequences, except (i) a default in the payment of the principal of or interest on any of the Debentures as and when the same shall become due by the terms of such Debentures otherwise than by acceleration (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal has been deposited with the Trustee (in accordance with Section 7.1(c)); (ii) a default in the covenants contained in Section 5.6; or (iii) in respect of a covenant or provision hereof which cannot be modified or amended without the consent of the holder of each Outstanding Debenture affected; provided, however, that if the Debentures are held by the Trust or a trustee of the Trust, such waiver or modification to such waiver shall not be effective until the holders of a majority in liquidation preference of Trust Securities of the Trust shall have consented to such waiver or modification to such waiver; provided further, that if the consent of the holder of each Outstanding Debenture is required, such waiver shall not be effective until each holder of the Trust Securities of the Trust shall have consented to such waiver. Upon any such waiver, the default covered thereby shall be deemed to be cured for all purposes of this Indenture and the Company, the Trustee and the holders of the Debentures shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 7.7. UNDERTAKING TO PAY COSTS. All parties to this Indenture agree, and each holder of any Debentures by such holder's acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 7.7 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Debentureholder, or group of Debentureholders holding more than 10% in aggregate principal amount of the Outstanding Debentures, or to any suit instituted 26 33 EXHIBIT 4(b)(1) by any Debentureholder for the enforcement of the payment of the principal of or interest on the Debentures, on or after the respective due dates expressed in such Debenture or established pursuant to this Indenture. ARTICLE VIII. FORM OF DEBENTURE AND ORIGINAL ISSUE SECTION 8.1. FORM OF DEBENTURE. The Debenture and the Trustee's Certificate of Authentication to be endorsed thereon are to be substantially in the forms contained as Exhibit A attached hereto and incorporated herein by reference. SECTION 8.2. ORIGINAL ISSUE OF DEBENTURES. Debentures in the aggregate principal amount of $25,773,200 may, upon execution of this Indenture, be executed by the Company and delivered to the Trustee for authentication. If the Underwriters exercise their Option and there is an Option Closing Date (as such terms are defined in the Underwriting Agreement, dated March 17, 1997, by and among the Company, the Trust and Stifel Nicolaus & Company, Incorporated, for itself and as representative of the Underwriters named therein) then, on such Option Closing Date, Debentures in the additional aggregate principal amount of up to $2,577,325 may be executed by the Company and delivered to the Trustee for authentication. In either such event, the Trustee shall thereupon authenticate and deliver said Debentures to or upon the written order of the Company, signed by its Chairman, its Vice Chairman, its President, or any Vice President and its Treasurer or an Assistant Treasurer, without any further action by the Company. ARTICLE IX. CONCERNING TRUSTEE SECTION 9.1. CERTAIN DUTIES AND RESPONSIBILITIES OF TRUSTEE. (a) The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform with respect to the Debentures such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants shall be read into this Indenture against the Trustee. In case an Event of Default has occurred that has not been cured or waived, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: 27 34 EXHIBIT 4(b)(1) (i) the duties and obligations of the Trustee shall with respect to the Debentures be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable with respect to the Debentures except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on the part of the Trustee, the Trustee may with respect to the Debentures conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (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 the holders of not less than a majority in principal amount of the Debentures at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture with respect to the Debentures; and (4) none of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Indenture or adequate indemnity against such risk is not reasonably assured to it. SECTION 9.2. NOTICE OF DEFAULTS. Within 90 days after actual knowledge by a Responsible Officer of the Trustee of the occurrence of any default hereunder with respect to the Debentures, the Trustee shall transmit by mail to all holders of the Debentures, as their names and addresses appear in the Debenture Register, notice of such default, unless such default shall have been cured or waived; provided, however, that, except in the case default in the payment of the principal or interest (including any Additional Interest) on any Debenture, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of the directors and/or Responsible Officers of the Trustee determines in good faith that the withholding of such notice is in the interests of the holders of such Debentures; and provided, further, that in the case of any default of the character specified in section 7.1(a)(iii), no such notice to holders of Debentures need be sent until at least 30 days after the occurrence thereof. For the purposes of this Section 9.2, the term "default" means any event which is, or after notice or lapse of time or both, would become, an Event of Default with respect to the Debentures. 28 35 EXHIBIT 4(b)(1) SECTION 9.3. CERTAIN RIGHTS OF TRUSTEE. Except as otherwise provided in Section 9.1: (a) The Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, security or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) Any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by a Board Resolution or an instrument signed in the name of the Company by the President or any Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer thereof (unless other evidence in respect thereof is specifically prescribed herein); (c) The Trustee shall not be deemed to have knowledge of a default or an Event of Default, other than an Event of Default specified in Section 7.1(a)(i) or (ii), unless and until it receives written notification of such Event of Default from the Company or by holders of at least 25% of the aggregate principal amount of the Debentures at the time Outstanding; (d) The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted hereunder in good faith and in reliance thereon; (e) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Debentureholders, pursuant to the provisions of this Indenture, unless such Debentureholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that may be incurred therein or thereby; nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default (that has not been cured or waived) to exercise with respect to the Debentures such of the rights and powers vested in it by this Indenture, and to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs; (f) The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (g) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, security, or other papers or documents, unless requested in writing so to do by the holders of not less than a majority in principal amount of the Outstanding Debentures (determined as provided in Section 10.4); provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such costs, expenses or liabilities as a condition to so proceeding. The reasonable expense of every such examination shall be paid by the Company or, if paid by the Trustee, 29 36 EXHIBIT 4(b)(1) shall be repaid by the Company upon demand; and (h) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 9.4. TRUSTEE NOT RESPONSIBLE FOR RECITALS, ETC. (a) The Recitals contained herein and in the Debentures shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. (b) The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Debentures. (c) The Trustee shall not be accountable for the use or application by the Company of any of the Debentures or of the proceeds of such Debentures, or for the use or application of any moneys paid over by the Trustee in accordance with any provision of this Indenture, or for the use or application of any moneys received by any paying agent other than the Trustee. SECTION 9.5. MAY HOLD DEBENTURES. The Trustee or any Paying Agent or Debenture Registrar for the Debentures, in its individual or any other capacity, may become the owner or pledgee of Debentures with the same rights it would have if it were not Trustee, Paying Agent or Debenture Registrar. SECTION 9.6. MONEYS HELD IN TRUST. Subject to the provisions of Section 13.5, all moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any moneys received by it hereunder except such as it may agree with the Company to pay thereon. SECTION 9.7. COMPENSATION AND REIMBURSEMENT. (a) The Company covenants and agrees to pay to the Trustee, and the Trustee shall be entitled to, such reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), as the Company and the Trustee may from time to time agree in writing, for all services rendered by it in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee, and, except as otherwise expressly provided herein, the Company shall pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all Persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify the Trustee (and 30 37 EXHIBIT 4(b)(1) its officers, agents, directors and employees) for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on the part of the Trustee and arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim of liability in the premises. (b) The obligations of the Company under this Section 9.7 to compensate and indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Debentures upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Debentures. SECTION 9.8. RELIANCE ON OFFICERS' CERTIFICATE. Except as otherwise provided in Section 9.1, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting to take any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee and such certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted to be taken by it under the provisions of this Indenture upon the faith thereof. SECTION 9.9. DISQUALIFICATION: CONFLICTING INTERESTS. If the Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the Company shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 9.10. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at all times be a Trustee with respect to the Debentures issued hereunder which shall at all times be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or other Person permitted to act as trustee by the Commission, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by federal, state, territorial, or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 9.10, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Company may not, nor may any Person directly or indirectly controlling, controlled by, or under common control with the Company, serve as Trustee. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 9.10, the Trustee shall resign immediately in the manner and with the effect specified in Section 9.11. SECTION 9.11. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. 31 38 EXHIBIT 4(b)(1) (a) The Trustee or any successor hereafter appointed, may at any time resign by giving written notice thereof to the Company and by transmitting notice of resignation by mail, first class postage prepaid, to the Debentureholders, as their names and addresses appear upon the Debenture Register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee with respect to Debentures by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the mailing of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee with respect to Debentures, or any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months may, subject to the provisions of Section 9.11, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (b) In case at any time any one of the following shall occur (i) the Trustee shall fail to comply with the provisions of Section 9.9 after written request therefor by the Company or by any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months; or (ii) the Trustee shall cease to be eligible in accordance with the provisions of Section 9.10 and shall fail to resign after written request therefor by the Company or by any such Debentureholder; or (iii) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or commence a voluntary bankruptcy proceeding, or a receiver of the Trustee or of its property shall be appointed or consented to, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Company may remove the Trustee with respect to all Debentures and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 9.9, unless the Trustee's duty to resign is stayed as provided herein, any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months may, on behalf of that holder and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The holders of a majority in aggregate principal amount of the Debentures at the time Outstanding may at any time remove the Trustee by so notifying the Trustee and the Company and may appoint a successor Trustee with the consent of the Company. (d) Any resignation or removal of the Trustee and appointment of a successor trustee with respect to the Debentures pursuant to any of the provisions of this Section 9.11 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 9.12. 32 39 EXHIBIT 4(b)(1) (e) Any successor trustee appointed pursuant to this Section 9.11 may be appointed with respect to the Debentures, and at any time there shall be only one Trustee with respect to the Debentures. SECTION 9.12. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. (a) In case of the appointment hereunder of a successor trustee with respect to the Debentures, every successor trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor trustee all the rights, powers, and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor trustee all property and money held by such retiring Trustee hereunder. (b) Upon request of any successor trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor trustee all such rights, powers and trusts referred to in Section 9.12(a). (c) No successor trustee shall accept its appointment unless at the time of such acceptance such successor trustee shall be qualified and eligible under this Article IX. (d) Upon acceptance of appointment by a successor trustee as provided in this Section 9.12, the Company shall transmit notice of the succession of such trustee hereunder by mail, first class postage prepaid, to the Debentureholders, as their names and addresses appear upon the Debenture Register. If the Company fails to transmit such notice within ten days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be transmitted at the expense of the Company. SECTION 9.13. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided that such corporation shall be qualified under the provisions of Section 9.9 and eligible under the provisions of Section 9.10, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. In case any Debentures shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Debentures so authenticated with the same effect as if such successor Trustee had itself authenticated such Debentures. SECTION 9.14. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY. The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship described in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been 33 40 EXHIBIT 4(b)(1) removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent included therein. ARTICLE X. CONCERNING DEBENTUREHOLDERS SECTION 10.1. EVIDENCE OF ACTION BY HOLDERS. (a) Whenever in this Indenture it is provided that the holders of a majority or specified percentage in aggregate principal amount of the Debentures may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action the holders of such majority or specified percentage have joined therein may be evidenced by any instrument or any number of instruments of similar tenor executed by such holders of Debentures in Person or by agent or proxy appointed in writing. (b) If the Company shall solicit from the Debentureholders any request, demand, authorization, direction, notice, consent, waiver or other action, the Company may, at its option, as evidenced by an Officers' Certificate, fix in advance a record date for the determination of Debentureholders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other action, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other action may be given before or after the record date, but only the Debentureholders of record at the close of business on the record date shall be deemed to be Debentureholders for the purposes of determining whether Debentureholders of the requisite proportion of Outstanding Debentures have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other action, and for that purpose the Outstanding Debentures shall be computed as of the record date; provided, however, that no such authorization, agreement or consent by such Debentureholders on the record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. SECTION 10.2. PROOF OF EXECUTION BY DEBENTUREHOLDERS. Subject to the provisions of Section 9.1, proof of the execution of any instrument by a Debentureholder (such proof shall not require notarization) or his agent or proxy and proof of the holding by any Person of any of the Debentures shall be sufficient if made in the following manner: (a) The fact and date of the execution by any such Person of any instrument may be proved in any reasonable manner acceptable to the Trustee. (b) The ownership of Debentures shall be proved by the Debenture Register of such Debentures or by a certificate of the Debenture Registrar thereof. (c) The Trustee may require such additional proof of any matter referred to in this Section 10.2 as it shall deem necessary. SECTION 10.3. WHO MAY BE DEEMED OWNERS. 34 41 EXHIBIT 4(b)(1) Prior to the due presentment for registration of transfer of any Debenture, the Company, the Trustee, any Paying Agent, any Authenticating Agent and any Debenture Registrar may deem and treat the Person in whose name such Debenture shall be registered upon the books of the Company as the absolute owner of such Debenture (whether or not such Debenture shall be overdue and notwithstanding any notice of ownership or writing thereon made by anyone other than the Debenture Registrar) for the purpose of receiving payment of or on account of the principal of and interest on such Debenture (subject to Section 2.3) and for all other purposes; and neither the Company nor the Trustee nor any Paying Agent nor any Authenticating Agent nor any Debenture Registrar shall be affected by any notice to the contrary. SECTION 10.4. CERTAIN DEBENTURES OWNED BY COMPANY DISREGARDED. In determining whether the holders of the requisite aggregate principal amount of Debentures have concurred in any direction, consent or waiver under this Indenture, the Debentures that are owned by the Company or any other obligor on the Debentures or by any Person directly or indirectly controlling or controlled by or under common control with the Company or any other obligor on the Debentures shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, except that for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Debentures that the Trustee actually knows are so owned shall be so disregarded. The Debentures so owned that have been pledged in good faith may be regarded as Outstanding for the purposes of this Section 10.4, if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right so to act with respect to such Debentures and that the pledgee is not a Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any such other obligor. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. SECTION 10.5. ACTIONS BINDING ON FUTURE DEBENTUREHOLDERS. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 10.1, of the taking of any action by the holders of the majority or percentage in aggregate principal amount of the Debentures specified in this Indenture in connection with such action, any holder of a Debenture that is shown by the evidence to be included in the Debentures the holders of which have consented to such action may, by filing written notice with the Trustee, and upon proof of holding as provided in Section 10.2, revoke such action so far as concerns such Debenture. Except as aforesaid any such action taken by the holder of any Debenture shall be conclusive and binding upon such holder and upon all future holders and owners of such Debenture, and of any Debenture issued in exchange therefor, on registration of transfer thereof or in place thereof, irrespective of whether or not any notation in regard thereto is made upon such Debenture. Any action taken by the holders of the majority or percentage in aggregate principal amount of the Debentures specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the holders of all the Debentures. ARTICLE XI. SUPPLEMENTAL INDENTURES SECTION 11.1. SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF DEBENTUREHOLDERS. 35 42 EXHIBIT 4(b)(1) In addition to any supplemental indenture otherwise authorized by this Indenture, the Company and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as then in effect), without the consent of the Debentureholders, for one or more of the following purposes: (a) to cure any ambiguity, defect, or inconsistency herein or in the Debentures; (b) to comply with Article X; (c) to provide for uncertificated Debentures in addition to or in place of certificated Debentures; (d) to add to the covenants of the Company for the benefit of the holders of all or any of the Debentures or to surrender any right or power herein conferred upon the Company; (e) to add to, delete from, or revise the conditions, limitations, and restrictions on the authorized amount, terms, or purposes of issue, authentication, and delivery of Debentures, as herein set forth; (f) to make any change that does not adversely affect the rights of any Debentureholder in any material respect; (g) to provide for the issuance of and establish the form and terms and conditions of the Debentures, to establish the form of any certifications required to be furnished pursuant to the terms of this Indenture or of the Debentures, or to add to the rights of the holders of the Debentures; or (h) qualify or maintain the qualification of this Indenture under the Trust Indenture Act. The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into any such supplemental indenture that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section 11.1 may be executed by the Company and the Trustee without the consent of the holders of any of the Debentures at the time Outstanding, notwithstanding any of the provisions of Section 11.2. SECTION 11.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS. With the consent (evidenced as provided in Section 10.1) of the holders of not less than a majority in aggregate principal amount of the Debentures at the time Outstanding, the Company, when authorized by Board Resolutions, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as then in effect) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner not covered by Section 11.1 the rights of the holders of the Debentures under this Indenture; provided, however, that no such supplemental indenture shall without the consent of the holders of each Debenture then Outstanding and affected thereby, (i) extend the fixed maturity of any Debentures, reduce the principal amount thereof, 36 43 EXHIBIT 4(b)(1) or reduce the rate or extend the time of payment of interest thereon, without the consent of the holder of each Debenture so affected; or (ii) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture; provided further, that if the Debentures are held by the Trust or a trustee of the Trust, such supplemental indenture shall not be effective until the holders of a majority in liquidation preference of Trust Securities of the Trust shall have consented to such supplemental indenture; provided further, that if the consent of the holder of each Outstanding Debenture is required, such supplemental indenture shall not be effective until each holder of the Trust Securities of the Trust shall have consented to such supplemental indenture. It shall not be necessary for the consent of the Debentureholders affected thereby under this Section 11.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. SECTION 11.3. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture pursuant to the provisions of this Article XI, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Debentures shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. SECTION 11.4. DEBENTURES AFFECTED BY SUPPLEMENTAL INDENTURES. Debentures affected by a supplemental indenture, authenticated and delivered after the execution of such supplemental indenture pursuant to the provisions of this Article XI, may bear a notation in form approved by the Company, provided such form meets the requirements of any exchange upon which the Debentures may be listed, as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Debentures so modified as to conform, in the opinion of the Board of Directors of the Company, to any modification of this Indenture contained in any such supplemental indenture may be prepared by the Company, authenticated by the Trustee and delivered in exchange for the Debentures then Outstanding. SECTION 11.5. EXECUTION OF SUPPLEMENTAL INDENTURES. (a) Upon the request of the Company, accompanied by its Board Resolutions authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Debentureholders required to consent thereto as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion but shall not be obligated to enter into such supplemental indenture. The Trustee, subject to the provisions of Sections 9.1, may receive an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article XI is authorized or permitted by, and conforms to, the terms of this Article XI and that it is proper for the Trustee under the provisions of this Article XI to join in the execution thereof. 37 44 EXHIBIT 4(b)(1) (b) Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section 11.5, the Trustee shall transmit by mail, first class postage prepaid, a notice, setting forth in general terms the substance of such supplemental indenture, to the Debentureholders as their names and addresses appear upon the Debenture Register. Any failure of the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. ARTICLE XII. SUCCESSOR CORPORATION SECTION 12.1. COMPANY MAY CONSOLIDATE, ETC. Nothing contained in this Indenture or in any of the Debentures shall prevent any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company, as the case may be), or successive consolidations or mergers in which the Company, as the case may be, or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance, transfer or other disposition of the property of the Company, as the case may be, or its successor or successors as an entirety, or substantially as an entirety, to any other corporation (whether or not affiliated with the Company, as the case may be, or its successor or successors) authorized to acquire and operate the same; provided, however, that the Company hereby covenants and agrees that, (i) upon any such consolidation, merger, sale, conveyance, transfer or other disposition, the due and punctual payment, in the case of the Company, of the principal of and interest on all of the Debentures, according to their tenor and the due and punctual performance and observance of all the covenants and conditions of this Indenture to be kept or performed by the Company as the case may be, shall be expressly assumed, by supplemental indenture (which shall conform to the provisions of the Trust Indenture Act, as then in effect) satisfactory in form to the Trustee executed and delivered to the Trustee by the entity formed by such consolidation, or into which the Company, as the case may be, shall have been merged, or by the entity which shall have acquired such property; (ii) in case the Company consolidates with or merges into another Person or conveys or transfers its properties and assets substantially as an entirety to any Person, the successor Person is organized under the laws of the United States or any state or the District of Columbia; and (iii) immediately after giving effect thereto, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing. SECTION 12.2. SUCCESSOR CORPORATION SUBSTITUTED. (a) In case of any such consolidation, merger, sale, conveyance, transfer or other disposition and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the due and punctual payment of the principal of and interest on all of the Debentures Outstanding and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Company such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named as the Company herein, and thereupon the predecessor corporation shall be relieved of all obligations and covenants under this Indenture and the Debentures. 38 45 EXHIBIT 4(b)(1) (b) In case of any such consolidation, merger, sale, conveyance, transfer or other disposition such changes in phraseology and form (but not in substance) may be made in the Debentures thereafter to be issued as may be appropriate. (c) Nothing contained in this Indenture or in any of the Debentures shall prevent the Company from merging into itself or acquiring by purchase or otherwise all or any part of the property of any other Person (whether or not affiliated with the Company). SECTION 12.3. EVIDENCE OF CONSOLIDATION, ETC. TO TRUSTEE. The Trustee, subject to the provisions of Section 9.1, may receive an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance, transfer or other disposition, and any such assumption, comply with the provisions of this Article XII. ARTICLE XIII. SATISFACTION AND DISCHARGE SECTION 13.1. SATISFACTION AND DISCHARGE OF INDENTURE. If at any time: (a) the Company shall have delivered to the Trustee for cancellation all Debentures theretofore authenticated (other than any Debentures that shall have been destroyed, lost or stolen and that shall have been replaced or paid as provided in Section 2.9) and Debentures for whose payment money or Governmental Obligations have theretofore been deposited in trust or segregated and held in trust by the Company (and thereupon repaid to the Company or discharged from such trust, as provided in Section 13.5); or (b) all such Debentures not theretofore delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit or cause to be deposited with the Trustee as trust funds the entire amount in moneys or Governmental Obligations sufficient, or a combination thereof, sufficient in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay at maturity or upon redemption all Debentures not theretofore delivered to the Trustee for cancellation, including principal and interest due or to become due to such date of maturity or date fixed for redemption, as the case may be, and if the Company shall also pay or cause to be paid all other sums payable hereunder by the Company; then this Indenture shall thereupon cease to be of further effect except for the provisions of Sections 2.3, 2.7, 2.9, 5.1, 5.2, 5.3 and 9.10, that shall survive until the date of maturity or redemption date, as the case may be, and Sections 9.6 and 13.5, that shall survive to such date and thereafter, and the Trustee, on demand of the Company and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture. SECTION 13.2. DISCHARGE OF OBLIGATIONS. If at any time all Debentures not heretofore delivered to the Trustee for cancellation or that have not become due and payable as described in Section 13.1 shall have been paid by the Company by depositing irrevocably with the Trustee as trust funds moneys or an amount of Governmental Obligations sufficient in 39 46 EXHIBIT 4(b)(1) the opinion of a nationally recognized certified public accounting firm to pay at maturity or upon redemption all Debentures not theretofore delivered to the Trustee for cancellation, including principal and interest due or to become due to such date of maturity or date fixed for redemption, as the case may be, and if the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then after the date such moneys or Governmental Obligations, as the case may be, are deposited with the Trustee, the obligations of the Company under this Indenture shall cease to be of further effect except for the provisions of Sections 2.3, 2.7, 2.9, 5.1, 5.2, 5.3, 9.6, 9.10 and 13.5 hereof that shall survive until such Debentures shall mature and be paid. Thereafter, Sections 9.6 and 13.5 shall survive. SECTION 13.3. DEPOSITED MONEYS TO BE HELD IN TRUST. All monies or Governmental Obligations deposited with the Trustee pursuant to Sections 13.1 or 13.2 shall be held in trust and shall be available for payment as due, either directly or through any Paying Agent (including the Company acting as its own Paying Agent), to the holders of the Debentures for the payment or redemption of which such moneys or Governmental Obligations have been deposited with the Trustee. SECTION 13.4. PAYMENT OF MONIES HELD BY PAYING AGENTS. In connection with the satisfaction and discharge of this Indenture, all moneys or Governmental Obligations then held by any Paying Agent under the provisions of this Indenture shall, upon demand of the Company, be paid to the Trustee and thereupon such Paying Agent shall be released from all further liability with respect to such moneys or Governmental Obligations. SECTION 13.5. REPAYMENT TO COMPANY. Any monies or Governmental Obligations deposited with any Paying Agent or the Trustee, or then held by the Company in trust, for payment of principal of or interest on the Debentures that are not applied but remain unclaimed by the holders of such Debentures for at least two years after the date upon which the principal of or interest on such Debentures shall have respectively become due and payable, shall be repaid to the Company, as the case may be, on May 31 of each year or (if then held by the Company) shall be discharged from such trust; and thereupon the Paying Agent and the Trustee shall be released from all further liability with respect to such moneys or Governmental Obligations, and the holder of any of the Debentures entitled to receive such payment shall thereafter, as an unsecured general creditor, look only to the Company for the payment thereof. ARTICLE XIV. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS SECTION 14.1. NO RECOURSE. No recourse under or upon any obligation, covenant or agreement of this Indenture, or of the Debentures, or for any claim based thereon or otherwise in respect thereof, shall be had against any 40 47 EXHIBIT 4(b)(1) incorporator, stockholder, officer or director, past, present or future as such, of the Company or of any predecessor or successor corporation, either directly or through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, stockholders, officers or directors as such, of the Company or of any predecessor or successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, and any and all such rights and claims against, every such incorporator, stockholder, officer or director as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of such Debentures. ARTICLE XV. MISCELLANEOUS PROVISIONS SECTION 15.1. EFFECT ON SUCCESSORS AND ASSIGNS. All the covenants, stipulations, promises and agreements in this Indenture contained by or on behalf of the Company shall bind their respective successors and assigns, whether so expressed or not. SECTION 15.2. ACTIONS BY SUCCESSOR. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the corresponding board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company. SECTION 15.3. SURRENDER OF COMPANY POWERS. The Company by instrument in writing executed by appropriate authority of its Board of Directors and delivered to the Trustee may surrender any of the powers reserved to the Company, and thereupon such power so surrendered shall terminate both as to the Company, as the case may be, and as to any successor corporation. SECTION 15.4. NOTICES. Except as otherwise expressly provided herein any notice or demand that by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Debentures to or on the Company may be given or served by being deposited first class postage prepaid in a post-office letterbox addressed (until another address is filed in writing by the Company with the Trustee), as follows: 41 48 EXHIBIT 4(b)(1) c/o 1st Source Corporation, 100 North Michigan Avenue, South Bend, Indiana 46601, Attention: Chief Financial Officer. Any notice, election, request or demand by the Company or any Debentureholder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made in writing at the Corporate Trust Office of the Trustee. SECTION 15.5. GOVERNING LAW. This Indenture and each Debenture shall be deemed to be a contract made under the internal laws of the State of Indiana and for all purposes shall be construed in accordance with the laws of said State. SECTION 15.6. TREATMENT OF DEBENTURES AS DEBT. It is intended that the Debentures shall be treated as indebtedness and not as equity for federal income tax purposes. The provisions of this Indenture shall be interpreted to further this intention. SECTION 15.7. COMPLIANCE CERTIFICATES AND OPINIONS. (a) Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or demand, no additional certificate or opinion need be furnished. (b) Each certificate or opinion of the Company provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant in this Indenture shall include (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as, in the opinion of such Person, is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. SECTION 15.8. PAYMENTS ON BUSINESS DAYS. In any case where the date of maturity of interest or principal of any Debenture or the date of redemption of any Debenture shall not be a Business Day, then payment of interest or principal may be made on the next succeeding Business Day with the same force and effect as if made on the nominal date of maturity or redemption, and no interest shall accrue for the period after such nominal date. SECTION 15.9. CONFLICT WITH TRUST INDENTURE ACT. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties 42 49 EXHIBIT 4(b)(1) imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. SECTION 15.10. COUNTERPARTS. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. SECTION 15.11. SEPARABILITY. In case any one or more of the provisions contained in this Indenture or in the Debentures shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Indenture or of the Debentures, but this Indenture and the Debentures shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. SECTION 15.12. ASSIGNMENT. The Company shall have the right at all times to assign any of its respective rights or obligations under this Indenture to a direct or indirect wholly owned Subsidiary of the Company, provided that, in the event of any such assignment, the Company shall remain liable for all such obligations. Subject to the foregoing, this Indenture is binding upon and inures to the benefit of the parties thereto and their respective successors and assigns. This Indenture may not otherwise be assigned by the parties thereto. SECTION 15.13. ACKNOWLEDGMENT OF RIGHTS. The Company acknowledges that, with respect to any Debentures held by the Trust or a trustee of the Trust, if the Property Trustee fails to enforce its rights under this Indenture as the holder of the Debentures held as the assets of the Trust, any holder of Preferred Securities may institute legal proceedings directly against the Company to enforce such Property Trustee's rights under this Indenture without first instituting any legal proceedings against such Property Trustee or any other person or entity. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), the Company acknowledges that a holder of Preferred Securities may directly institute a proceeding for enforcement of payment to such holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such holder on or after the respective due date specified in the Debentures. ARTICLE XVI. SUBORDINATION OF DEBENTURES SECTION 16.1. AGREEMENT TO SUBORDINATE. The Company covenants and agrees, and each holder of Debentures issued hereunder by such 43 50 EXHIBIT 4(b)(1) holder's acceptance thereof likewise covenants and agrees, that all Debentures shall be issued subject to the provisions of this Article XVI; and each holder of a Debenture, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment by the Company of the principal of and interest on all Debentures issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and junior in right of payment to the prior payment in full of all Senior Debt, Subordinated Debt and Additional Senior Obligations (collectively, "Senior Indebtedness") to the extent provided herein, whether outstanding at the date of this Indenture or thereafter incurred; provided, however, that the Debentures shall rank pari passu in right of payment with the Company's Floating Rate Subordinated Debentures due 2027, issued pursuant to the Indenture, dated as of March 21, 1997, with respect to such debentures by and between the Company and State Street Bank and Trust Company, as trustee thereunder. No provision of this Article XVI shall prevent the occurrence of any default or Event of Default hereunder. SECTION 16.2. DEFAULT ON SENIOR DEBT, SUBORDINATED DEBT OR ADDITIONAL SENIOR OBLIGATIONS. In the event and during the continuation of any default by the Company in the payment of principal, premium, interest or any other payment due on any Senior Indebtedness of the Company, or in the event that the maturity of any Senior Indebtedness of the Company has been accelerated because of a default, then, in either case, no payment shall be made by the Company with respect to the principal (including redemption payments) of or interest on the Debentures. In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding sentence of this Section 16.2, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that the holders of the Senior Indebtedness (or their representative or representatives or a trustee) notify the Trustee in writing within 90 days of such payment of the amounts then due and owing on the Senior Indebtedness and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Indebtedness. SECTION 16.3. LIQUIDATION; DISSOLUTION; BANKRUPTCY. (a) Upon any payment by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due upon all Senior Indebtedness of the Company shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Company on account of the principal or interest on the Debentures; and upon any such dissolution or winding-up or liquidation or reorganization, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holders of the Debentures or the Trustee would be entitled to receive from the Company, except for the provisions of this Article XVI, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the holders of the Debentures or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness of the Company (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, as calculated by the Company) or their representative or representatives, or to the trustee 44 51 EXHIBIT 4(b)(1) or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay such Senior Indebtedness in full, in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness, before any payment or distribution is made to the holders of Debentures or to the Trustee. (b) In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Trustee before all Senior Indebtedness of the Company is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, and their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Indebtedness of the Company, as the case may be, remaining unpaid to the extent necessary to pay such Senior Indebtedness in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of such Senior Indebtedness. (c) For purposes of this Article XVI, the words "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article XVI with respect to the Debentures to the payment of all Senior Indebtedness of the Company, as the case may be, that may at the time be outstanding, provided that (i) such Senior Indebtedness is assumed by the new corporation, if any, resulting from any such reorganization or readjustment; and (ii) the rights of the holders of such Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article XII shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 16.3 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article XII. Nothing in Section 16.2 or in this Section 16.3 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 9.7. SECTION 16.4. SUBROGATION. (a) Subject to the payment in full of all Senior Indebtedness of the Company, the rights of the holders of the Debentures shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company, as the case may be, applicable to such Senior Indebtedness until the principal of and interest on the Debentures shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of such Senior Indebtedness of any cash, property or securities to which the holders of the Debentures or the Trustee would be entitled except for the provisions of this Article XVI, and no payment over pursuant to the provisions of this Article XVI to or for the benefit of the holders of such Senior Indebtedness by holders of the Debentures or the Trustee, shall, as between the Company, its creditors other than holders of Senior Indebtedness of the 45 52 EXHIBIT 4(b)(1) Company, and the holders of the Debentures, be deemed to be a payment by the Company to or on account of such Senior Indebtedness. It is understood that the provisions of this Article XVI are and are intended solely for the purposes of defining the relative rights of the holders of the Debentures, on the one hand, and the holders of such Senior Indebtedness on the other hand. (b) Nothing contained in this Article XVI or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as between the Company, its creditors (other than the holders of Senior Indebtedness of the Company), and the holders of the Debentures, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Debentures the principal of and interest on the Debentures as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Debentures and creditors of the Company, as the case may be, other than the holders of Senior Indebtedness of the Company, as the case may be, nor shall anything herein or therein prevent the Trustee or the holder of any Debenture from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XVI of the holders of such Senior Indebtedness in respect of cash, property or securities of the Company, as the case may be, received upon the exercise of any such remedy. (c) Upon any payment or distribution of assets of the Company referred to in this Article XVI, the Trustee, subject to the provisions of Article IX, and the holders of the Debentures shall be entitled to conclusively rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the holders of the Debentures, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Company, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XVI. SECTION 16.5. TRUSTEE TO EFFECTUATE SUBORDINATION. Each holder of Debentures by such holder's acceptance thereof authorizes and directs the Trustee on such holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XVI and appoints the Trustee such holder's attorney-in-fact for any and all such purposes. SECTION 16.6. NOTICE BY COMPANY. (a) The Company shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Company that would prohibit the making of any payment of monies to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article XVI. Notwithstanding the provisions of this Article XVI or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of monies to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article XVI, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company or a holder or holders of Senior Indebtedness or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Section 9.1, shall be entitled in all respects to assume that no such facts 46 53 EXHIBIT 4(b)(1) exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 16.6 at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of or interest on any Debenture), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date. (b) The Trustee, subject to the provisions of Section 9.1, shall be entitled to conclusively rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness of the Company (or a trustee on behalf of such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of such Senior Indebtedness to participate in any payment or distribution pursuant to this Article XVI, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article XVI, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 16.7. RIGHTS OF TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS. (a) The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XVI in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. The Trustee's right to compensation and reimbursement of expenses as set forth in Section 9.7 shall not be subject to the subordination provisions of this Article XVI. (b) With respect to the holders of Senior Indebtedness of the Company, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article XVI, and no implied covenants or obligations with respect to the holders of such Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and, subject to the provisions of Section 9.1, the Trustee shall not be liable to any holder of such Senior Indebtedness if it shall pay over or deliver to holders of Debentures, the Company or any other Person money or assets to which any holder of such Senior Indebtedness shall be entitled by virtue of this Article XVI or otherwise. [Remainder of page intentionally left blank] 47 54 EXHIBIT 4(b)(1) SECTION 16.8. SUBORDINATION MAY NOT BE IMPAIRED. (a) No right of any present or future holder of any Senior Indebtedness of the Company to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or otherwise be charged with. (b) Without in any way limiting the generality of Section 16.8(a), the holders of Senior Indebtedness of the Company may, at any time and from time to time, without the consent of or notice to the Trustee or the holders of the Debentures, without incurring responsibility to the holders of the Debentures and without impairing or releasing the subordination provided in this Article XVI or the obligations hereunder of the holders of the Debentures to the holders of such Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Indebtedness, or otherwise amend or supplement in any manner such Senior Indebtedness or any instrument evidencing the same or any agreement under which such Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Indebtedness; (iii) release any Person liable in any manner for the collection of such Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. 1ST SOURCE CORPORATION By: /s/ Christopher J. Murphy III ---------------------------------------- Christopher J. Murphy III President and Chief Executive Officer Attest: /s/ Larry E. Lentych - ------------------------------ Larry E. Lentych STATE STREET BANK AND TRUST COMPANY, as trustee By: /s/ Paul D. Allen ---------------------------------------- Paul D. Allen Vice President Attest: 48 55 EXHIBIT 4(b)(1) /s/ Eric J. Donaghey - ------------------------------ Eric J. Donaghey 49 56 EXHIBIT 4(b)(1) STATE OF INDIANA ) ) ss: COUNTY OF ST. JOSEPH ) On this ------- day of -------------------------------, 1997, before me appeared Christopher J. Murphy III, to me personally known, who, being by me duly sworn, did say that he is the President and Chief Executive Officer of 1ST SOURCE CORPORATION, and that the seal affixed to said instrument is the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation by authority of its board of directors and said Christopher J. Murphy III, acknowledged said instrument to be the free act and deed of said corporation. In testimony whereof I have hereunto set my hand and affixed my official seal at my office in said county and state the day and year last above written. -------------------------------------- Notary Public [seal] My term expires: ---------------------- COMMONWEALTH OF MASSACHUSETTS ) ) ss: COUNTY OF SUFFOLK ) On this ------- day of -------------------------------, 199---, before me appeared ------------------------------, to me personally known, who, being by me duly sworn, did say that he is the ---------------------------- of STATE STREET BANK AND TRUST COMPANY, and that the seal affixed to said instrument is the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation by authority of its board of directors and said ------------------------------, acknowledged said instrument to be the free act and deed of said corporation. In testimony whereof I have hereunto set my hand and affixed my official seal at my office in said county and state the day and year last above written. --------------------------------------- Notary Public 50 57 EXHIBIT 4(b)(1) [seal] My term expires: ---------------------- 51 58 EXHIBIT 4(b)(1) EXHIBIT A [FORM OF DEBENTURE] No. 1 $28,350,525 CUSIP No. 336901 AC 7 1ST SOURCE CORPORATION 9.00% SUBORDINATED DEBENTURE DUE MARCH 31, 2027 1st Source Corporation, an Indiana corporation (the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to State Street Bank and Trust Company, as Property Trustee, or registered assigns, the principal sum of twenty eight million three hundred fifty thousand five hundred twenty five dollars ($28,350,525.00) on March 31, 2027 (the "Stated Maturity"), and to pay interest on said principal sum from March 21, 1997, or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears on March 31, June 30, September 30 and December 31 of each year commencing June 30, 1997, at the rate of 9.00% per annum until the principal hereof shall have become due and payable, and on any overdue principal and (without duplication) on any overdue installment of interest at the same rate per annum compounded quarterly. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of interest for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Debenture is not a business day, then payment of interest payable on such date shall be made on the next succeeding day that is a Business Day (as defined in the Indenture) (and without any interest or other payment in respect of any such delay) with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date shall, as provided in the Indenture, be paid to the person in whose name this Debenture (or one or more Predecessor Debentures, as defined in the Indenture) is registered at the close of business on the regular record date for such interest installment, which shall be the fifteenth day of the last month of the calendar quarter in which such Interest Payment Date occurs unless otherwise provided in the Indenture. The principal of and the interest on this Debenture shall be payable at the office or agency of the Trustee maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered holder at such address as shall appear in the Debenture Register. Notwithstanding the foregoing, so long as the holder of this Debenture is the Property Trustee, the payment of the principal of and interest on this Debenture shall be made at such place and to such account as may be designated by the Trustee. The Stated Maturity may be shortened at any time by the Company to any date not earlier than March 31, 2002, subject to the Company having received prior approval of the Federal Reserve if then Exhibit A-1 59 EXHIBIT 4(b)(1) required under applicable capital guidelines or policies of the Federal Reserve. Such date may also be extended at any time at the election of the Company for one or more periods, but in no event to a date later than March 31, 2046, subject to certain limitations described in the Indenture. The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, but shall rank pari passu in right of payment with the Floating Rate Subordinated Debentures due 2027 of the Company issued pursuant to the Indenture, dated as of March 21, 1997, with respect to such debentures by and between the Company and State Street Bank and Trust Company, as trustee thereunder. This Debenture is issued subject to the provisions of the Indenture with respect thereto. Each holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions; (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided; and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. This Debenture shall not be entitled to any benefit under the Indenture, be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Debenture are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. IN WITNESS WHEREOF, the Company has caused this instrument to be executed. Dated March 21, 1997 1ST SOURCE CORPORATION By:----------------------------------------- Christopher J. Murphy III President and Chief Executive Officer Attest: - ------------------------------ Larry E. Lentych Exhibit A-2 60 EXHIBIT 4(b)(1) [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the Debentures described in the within-mentioned Indenture. Dated: STATE STREET BANK AND TRUST COMPANY, ---------------------------------- as Trustee or Authentication Agent By---------------------------------- By-------------------------------- Authorized Signatory Exhibit A-3 61 EXHIBIT 4(b)(1) 9.00% SUBORDINATED DEBENTURE (CONTINUED) This Debenture is one of the subordinated debentures of the Company (the "Debentures"), all issued or to be issued under and pursuant to an Indenture dated as of March 21, 1997 (the "Indenture"), duly executed and delivered between the Company and State Street Bank and Trust Company, as Trustee (the "Trustee"), to which Indenture reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Debentures. The Debentures are limited in aggregate principal amount as specified in the Indenture. Company shall have the right, as set forth in the Indenture, to redeem this Debenture at the option of the Company, without premium or penalty, in whole or in part at any time on or after March 31, 2002 (an "Optional Redemption"), or at any time in certain circumstances upon the occurrence of a Special Event (as defined in the Indenture), at a redemption price (the "Redemption Price") equal to 100% of the principal amount hereof plus any accrued but unpaid interest hereon, to the date of such redemption. Any redemption pursuant to this paragraph shall be made upon not less than 30 days nor more than 60 days notice, at the Redemption Price. The Redemption Price shall be paid at the time and in the manner provided therefor in the Indenture. If the Debentures are only partially redeemed by the Company pursuant to an Optional Redemption, the Debentures shall be redeemed pro rata or by lot or by any other method utilized by the Trustee as described in the Indenture. In the event of an Optional Redemption of this Debenture in part only, a new Debenture or Debentures for the unredeemed portion hereof shall be issued in the name of the holder hereof upon the cancellation hereof. In case an Event of Default (as defined in the Indenture), shall have occurred and be continuing, the principal of all of the Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Debentures at the time Outstanding (as defined in the Indenture), to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Debentures; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of the Debentures except as provided in the Indenture, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, without the consent of the holder of each Debenture so affected; or (ii) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of each Debenture then outstanding and affected thereby. The Indenture also contains provisions permitting the holders of a majority in aggregate principal amount of the Debentures at the time outstanding, on behalf of all of the holders of the Debentures, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture, and its consequences, except a default in the payment of the principal of or interest on any of the Debentures. Any such consent or waiver by the registered holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Debenture and of any Debenture issued in exchange herefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Debenture. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal and 62 EXHIBIT 4(b)(1) interest on this Debenture at the time and place and at the rate and in the money herein prescribed. The Company, as further described in the Indentures, shall have the right at any time during the term of the Debentures and from time to time to extend the interest payment period of such Debentures for up to 20 consecutive quarters (each, an "Extended Interest Payment Period"), at the end of which period the Company shall pay all interest then accrued and unpaid (together with interest thereon at the rate specified for the Debentures to the extent that payment of such interest is enforceable under applicable law). Before the termination of any such Extended Interest Payment Period, the Company may further extend such Extended Interest Payment Period, provided that such Extended Interest Payment Period together with all such further extensions thereof shall not exceed 20 consecutive quarters. At the termination of any such Extended Interest Payment Period and upon the payment of all accrued and unpaid interest and any additional amounts then due, the Company may commence a new Extended Interest Payment Period. As provided in the Indenture, and subject to certain limitations therein set forth, this Debenture is transferable by the registered holder hereof on the Debenture Register (as defined in the Indenture) of the Company, upon surrender of this Debenture for registration of transfer at the office or agency of the Trustee accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered holder hereof or his attorney duly authorized in writing, and thereupon one or more new Debentures of authorized denominations and for the same aggregate principal amount shall be issued to the designated transferee or transferees. No service charge shall be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Debenture, the Company, the Trustee, any Paying Agent (as defined in the Indenture) and the Debenture Registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Debenture Registrar) for the purpose of receiving payment of or on account of the principal hereof and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any Paying Agent nor any Debentures Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. The Debentures are issuable only in registered form without coupons in denominations of $25 and any integral multiple thereof. All terms used in this Debenture that are defined in the Indenture shall have the meanings assigned to them in the Indenture. EX-4.(B)(2) 3 FORM OF TRUST AGREEMENT 1 EXHIBIT 4(b)(2) ============================================================================== 1ST SOURCE CAPITAL TRUST I AMENDED AND RESTATED TRUST AGREEMENT AMONG 1ST SOURCE CORPORATION, AS DEPOSITOR STATE STREET BANK AND TRUST COMPANY, AS PROPERTY TRUSTEE WILMINGTON TRUST COMPANY, AS DELAWARE TRUSTEE, AND THE ADMINISTRATIVE TRUSTEES NAMED HEREIN DATED AS OF MARCH 21, 1997 ============================================================================== 2 EXHIBIT 4(b)(2) TABLE OF CONTENTS
PAGE ARTICLE I - DEFINED TERMS 1 Section 101. Definitions 1 ARTICLE II - ESTABLISHMENT OF TRUST 8 Section 201. Name 8 Section 202. Office of Delaware Trustee; Principal Place of Business 9 Section 203. Initial Contribution of Trust Property; Organizational Expenses 9 Section 204. Issuance of Preferred Securities 9 Section 205. Issuance of Common Securities; Subscription and Purchase of Debentures 9 Section 206. Declaration of Trust 10 Section 207. Authorization to Enter into Certain Transactions 10 Section 208. Assets of Trust 13 Section 209. Title to Trust Property 13 ARTICLE III - PAYMENT ACCOUNT 13 Section 301. Payment Account 13 ARTICLE IV - DISTRIBUTIONS; REDEMPTION 14 Section 401. Distributions 14 Section 402. Redemption 15 Section 403. Subordination of Common Securities 16 Section 404. Payment Procedures 17 Section 405. Tax Returns and Reports 17 Section 406. Payment of Taxes, Duties, etc. of Trust 17 Section 407. Payments Under Indenture 17 ARTICLE V - TRUST SECURITIES CERTIFICATES 17 Section 501. Initial Ownership 17 Section 502. Trust Securities Certificates 18 Section 503. Execution, Authentication and Delivery of Trust Securities Certificates 18 Section 504. Registration of Transfer and Exchange of Preferred Securities Certificates 18 Section 505. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates 19 Section 506. Persons Deemed Securityholders 20 Section 507. Access to List of Securityholders' Names and Addresses 20 Section 508. Maintenance of Office or Agency 20 Section 509. Appointment of Paying Agent 20 Section 510. Ownership of Common Securities by Depositor 21 Section 511. Preferred Securities Certificates 21 Section 512. [Intentionally Omitted] 21 Section 513. [Intentionally Omitted] 21 Section 514. Rights of Securityholders 21 i 3 EXHIBIT 4(b)(2) ARTICLE VI - ACTS OF SECURITYHOLDERS; MEETINGS; VOTING 22 Section 601. Limitations on Voting Rights 22 Section 602. Notice of Meetings 23 Section 603. Meetings of Preferred Securityholders 23 Section 604. Voting Rights 24 Section 605. Proxies, etc. 24 Section 606. Securityholder Action by Written Consent 24 Section 607. Record Date for Voting and Other Purposes 24 Section 608. Acts of Securityholders 24 Section 609. Inspection of Records 25 ARTICLE VII - REPRESENTATIONS AND WARRANTIES 25 Section 701. Representations and Warranties of Bank and Property Trustee 25 Section 702. Representations and Warranties of Delaware Bank and Delaware Trustee 26 Section 703. Representations and Warranties of Depositor 27 ARTICLE VIII - TRUSTEES 28 Section 801. Certain Duties and Responsibilities 28 Section 802. Certain Notices 29 Section 803. Certain Rights of Property Trustee 29 Section 804. Not Responsible for Recitals or Issuance of Securities 31 Section 805. May Hold Securities 31 Section 806. Compensation; Indemnity; Fees 31 Section 807. Corporate Property Trustee Required; Eligibility of Trustees 32 Section 808. Conflicting Interests 32 Section 809. Co-Trustees and Separate Trustee 33 Section 810. Resignation and Removal; Appointment of Successor 34 Section 811. Acceptance of Appointment by Successor 35 Section 812. Merger, Conversion, Consolidation or Succession to Business 35 Section 813. Preferential Collection of Claims Against Depositor or Trust 36 Section 814. Reports by Property Trustee 36 Section 815. Reports to Property Trustee 36 Section 816. Evidence of Compliance with Conditions Precedent 36 Section 817. Number of Trustees 37 Section 818. Delegation of Power 37 Section 819. Voting 37 ARTICLE IX - TERMINATION, LIQUIDATION AND MERGER 37 Section 901. Termination Upon Expiration Date 38 Section 902. Early Termination 38 Section 903. Termination 38 Section 904. Liquidation 38 Section 905. Mergers, Consolidations, Amalgamations or Replacements of Trust 40 ARTICLE X - MISCELLANEOUS PROVISIONS 40 Section 1001. Limitation of Rights of Securityholders 40 Section 1002. Amendment 41 ii 4 EXHIBIT 4(b)(2) Section 1003. Separability 42 Section 1004. Governing law 42 Section 1005. Payments Due on Non-Business Day 42 Section 1006. Successors 42 Section 1007. Headings 42 Section 1008. Reports, Notices and Demands 42 Section 1009. Agreement Not to Petition 43 Section 1010. Trust Indenture Act; Conflict with Trust Indenture Act 43 Section 1011. Acceptance of Terms of Trust Agreement, Guarantee and Indenture 45 Exhibit A Certificate of Trust Exhibit B [Intentionally Omitted] Exhibit C Form of Common Securities Certificate Exhibit D Form of Expense Agreement Exhibit E Form of Preferred Securities Certificate
iii 5 EXHIBIT 4(b)(2) CROSS-REFERENCE TABLE
Section of Section of Trust Indenture Act Amended and Restated of 1939, as amended Trust Agreement - ------------------- -------------------- 310(a)(1) 807 310(a)(2) 807 310(a)(3) 807 310(a)(4) 207(a)(ii) 310(b) 808 311(a) 813 311(b) 813 312(a) 507 312(b) 507 312(c) 507 313(a) 814(a) 313(a)(4) 814(b) 313(b) 814(b) 313(c) 1008 313(d) 814(c) 314(a) 815 314(b) Not Applicable 314(c)(1) 816 314(c)(2) 816 314(c)(3) Not Applicable 314(d) Not Applicable 314(e) 101, 816 315(a) 801(a), 803(a) 315(b) 802, 1008 315(c) 801(a) 315(d) 801, 803 316(a)(2) Not Applicable 316(b) Not Applicable 316(c) 607 317(a)(1) Not Applicable 317(a)(2) Not Applicable 317(b) 509 318(a) 1010 Note: This Cross-Reference Table does not constitute part of this Agreement and should not affect the interpretation of any of its terms or provisions.
iv 6 EXHIBIT 4(b)(2) AMENDED AND RESTATED TRUST AGREEMENT AMENDED AND RESTATED TRUST AGREEMENT, dated as of March 21, 1997 among (i) 1ST SOURCE CORPORATION, an Indiana corporation (including any successors or assigns, the "Depositor"), (ii) STATE STREET BANK AND TRUST COMPANY, a trust company duly organized and existing under the laws of the Commonwealth of Massachusetts, as property trustee (the "Property Trustee" and, in its separate corporate capacity and not in its capacity as Property Trustee, the "Bank"), (iii) WILMINGTON TRUST COMPANY, a Delaware banking corporation duly organized and existing under the laws of the State of Delaware, as Delaware trustee (the "Delaware Trustee," and, in its separate corporate capacity and not in its capacity as Delaware Trustee, the "Delaware Bank") (iv) Christopher J. Murphy III, an individual, Wellington D. Jones III, an individual, and Larry E. Lentych, an individual, each of whose address is c/o 1st Source Corporation, 100 North Michigan Street, South Bend, Indiana 46601 (each an "Administrative Trustee" and, collectively, the "Administrative Trustees") (the Property Trustee, the Delaware Trustee and the Administrative Trustees are referred to collectively as the "Trustees"), and (v) the several Holders (as hereinafter defined). RECITALS WHEREAS, the Depositor, the Delaware Trustee, and Christopher J. Murphy III, Wellington D. Jones III and Larry E. Lentych, each as an Administrative Trustee, have heretofore duly declared and established a business trust pursuant to the Delaware Business Trust Act (as hereinafter defined) by the entering into of that certain Amended and Restated Trust Agreement, dated as of February 27, 1997 (the "Original Trust Agreement"), and by the execution and filing by the Delaware Trustee, the Depositor and the Administrative Trustees with the Secretary of State of the State of Delaware of the Restated Certificate of Trust, filed on February 27, 1997, the form of which is attached as Exhibit A; and WHEREAS, the Depositor, the Delaware Trustee, the Property Trustee and the Administrative Trustees desire to amend and restate the Original Trust Agreement in its entirety as set forth herein to provide for, among other things, (i) the issuance of the Common Securities (as defined herein) by the Trust (as defined herein) to the Depositor; (ii) the issuance and sale of the Preferred Securities (as defined herein) by the Trust pursuant to the Underwriting Agreement (as defined herein); (iii) the acquisition by the Trust from the Depositor of all of the right, title and interest in the Debentures (as defined herein); and (iv) the appointment of the Trustees. NOW THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each party, for the benefit of the other parties and for the benefit of the Securityholders (as defined herein), hereby amends and restates the Original Trust Agreement in its entirety and agrees as follows: ARTICLE I DEFINED TERMS SECTION 101. DEFINITIONS. For all purposes of this Trust Agreement, except as otherwise expressly provided or unless the context otherwise requires: 7 EXHIBIT 4(b)(2) (a) the terms defined in this Article I have the meanings assigned to them in this Article I and include the plural as well as the singular; (b) all other terms used herein that are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or a Section, as the case may be, of this Trust Agreement; and (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section or other subdivision. "Act" has the meaning specified in Section 608. "Additional Amount" means, with respect to Trust Securities of a given Liquidation Amount and/or a given period, the amount of additional interest accrued on interest in arrears and paid by the Depositor on a Like Amount of Debentures for such period. "Additional Interest" has the meaning specified in Section 1.1 of the Indenture. "Administrative Trustee" means each of Christopher J. Murphy III, Wellington D. Jones III and Larry E. Lentych, solely in his capacity as Administrative Trustee of the Trust formed and continued hereunder and not in his individual capacity, or such Administrative Trustee's successor in interest in such capacity, or any successor trustee appointed as herein provided. "Affiliate" means, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities or other ownership interests of the specified Person, any Person 10% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person; (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person; (d) a partnership in which the specified Person is a general partner; (e) any officer or director of the specified Person; and (f) if the specified Person is an individual, any entity of which the specified Person is an officer, director or general partner. "Authenticating Agent" means an authenticating agent with respect to the Preferred Securities appointed by the Property Trustee pursuant to Section 503. "Bank" has the meaning specified in the Preamble to this Trust Agreement. "Bankruptcy Event" means, with respect to any Person: (a) the entry of a decree or order by a court having jurisdiction in the premises adjudging such Person a bankrupt or insolvent, or approving as properly filed a petition seeking liquidation or reorganization of or in respect of such Person under the United States Bankruptcy Code of 1978, as amended, or any other similar applicable federal or state law, and the continuance of any such decree or order unvacated and unstayed for a period of 90 days; or the commencement of an involuntary case under the United States Bankruptcy Code of 1978, as amended, in respect of such Person, which shall continue undismissed for a 2 8 EXHIBIT 4(b)(2) period of 90 days or entry of an order for relief in such case; or the entry of a decree or order of a court having jurisdiction in the premises for the appointment on the ground of insolvency or bankruptcy of a receiver, custodian, liquidator, trustee or assignee in bankruptcy or insolvency of such Person or of its property, or for the winding up or liquidation of its affairs, and such decree or order shall have remained in force unvacated and unstayed for a period of 90 days; or (b) the institution by such Person of proceedings to be adjudicated a voluntary bankrupt, or the consent by such Person to the filing of a bankruptcy proceeding against it, or the filing by such Person of a petition or answer or consent seeking liquidation or reorganization under the United States Bankruptcy Code of 1978, as amended, or other similar applicable Federal or State law, or the consent by such Person to the filing of any such petition or to the appointment on the ground of insolvency or bankruptcy of a receiver or custodian or liquidator or trustee or assignee in bankruptcy or insolvency of such Person or of its property, or shall make a general assignment for the benefit of creditors. "Bankruptcy Laws" has the meaning specified in Section 1009. "Board Resolution" means a copy of a resolution certified by the Secretary 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 appropriate Trustee. "Business Day" means a day other than a Saturday or Sunday, a day on which banking institutions in The City of New York are authorized or required by law, executive order or regulation to remain closed, or a day on which the Property Trustee's Corporate Trust Office or the Corporate Trust Office of the Debenture Trustee is closed for business. "Certificate of Trust" means the certificate of trust filed with the Secretary of State of the State of Delaware with respect to the Trust, as amended or restated from time to time. "Closing Date" means the date of execution and delivery of this Trust Agreement. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Security" means an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $25 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. "Common Securities Certificate" means a certificate evidencing ownership of Common Securities, substantially in the form attached as Exhibit C. "Corporate Trust Office" means the office at which, at any particular time, the corporate trust 3 9 EXHIBIT 4(b)(2) business of the Property Trustee or the Debenture Trustee, as the case may be, shall be principally administered, which office at the date hereof, in each such case, is located at Two International Place, 4th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Department. "Debenture Event of Default" means an "Event of Default" as defined in Section 7.1 of the Indenture. "Debenture Redemption Date" means, with respect to any Debentures to be redeemed under the Indenture, the date fixed for redemption under the Indenture. "Debenture Trustee" means State Street Bank and Trust Company, a banking corporation organized under the laws of the Commonwealth of Massachusetts and any successor thereto, as trustee under the Indenture. "Debentures" means the $28,350,525 aggregate principal amount of the Depositor's 9.00% Subordinated Debentures due 2027, issued pursuant to the Indenture. "Delaware Bank" has the meaning specified in the Preamble to this Trust Agreement. "Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Delaware Code Sections 3801 et seq. as it may be amended from time to time. "Delaware Trustee" means the commercial bank or trust company identified as the "Delaware Trustee" in the Preamble to this Trust Agreement solely in its capacity as Delaware Trustee of the Trust formed and continued hereunder and not in its individual capacity, or its successor in interest in such capacity, or any successor trustee appointed as herein provided. "Depositor" has the meaning specified in the Preamble to this Trust Agreement. "Distribution Date" has the meaning specified in Section 401(a). "Distributions" means amounts payable in respect of the Trust Securities as provided in Section 401. "Early Termination Event" has the meaning specified in Section 902. "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 or the Property Trustee 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 or the Property Trustee in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or 4 10 EXHIBIT 4(b)(2) (d) default in the performance, or breach, in any material respect, of any covenant or warranty of the Trustees in this Trust Agreement (other than a covenant or warranty a default in the performance of which or the breach of which is dealt with in clause (b) or (c), above) and continuation of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the defaulting Trustee or Trustees by the Holders of at least 25% in aggregate Liquidation 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 60 days thereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Expense Agreement" means the Agreement as to Expenses and Liabilities between the Depositor and the Trust, substantially in the form attached as Exhibit D, as amended from time to time. "Expiration Date" has the meaning specified in Section 901. "Extended Interest Payment Period" has the meaning specified in Section 4.1 of the Indenture. "Federal Reserve" means the Board of Governors of the Federal Reserve System. "Guarantee" means the Fixed Rate Preferred Securities Guarantee Agreement executed and delivered by the Depositor and State Street Bank and Trust Company, as trustee, contemporaneously with the execution and delivery of this Trust Agreement, for the benefit of the holders of the Preferred Securities, as amended from time to time. "Indenture" means the Indenture, dated as of March 21, 1997, between the Depositor and the Debenture Trustee, as trustee, as amended or supplemented from time to time pertaining to the Debentures of the Depositor. "Investment Company Act," means the Investment Company Act of 1940, as amended, as in effect at the date of execution of this instrument. "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 principal amount of Debentures to be contemporaneously redeemed in accordance with the Indenture and the proceeds of which shall be used to pay the Redemption Price of such Trust Securities; and (b) with respect to a distribution of Debentures to Holders of Trust Securities in connection with a termination or liquidation of the Trust, Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the Holder to whom such Debentures are distributed. Each Debenture distributed pursuant to clause (b) above shall carry with it accumulated interest in an amount equal to the accumulated and unpaid interest then due on such Debenture. 5 11 EXHIBIT 4(b)(2) "Liquidation Amount" means the stated amount of $25 per Trust Security. "Liquidation Date" means the date on which Debentures are to be distributed to Holders of Trust Securities in connection with a termination and liquidation of the Trust pursuant to Section 904(a). "Liquidation Distribution" has the meaning specified in Section 904(d). "Officers' Certificate" means a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Controller or an Assistant Controller or 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 816 shall be the principal executive, financial or accounting officer of the Depositor. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Trust Agreement shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Opinion of Counsel" means an opinion in writing of legal counsel, who may be an employee of or counsel for the Trust, the Property Trustee, the Delaware 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 Preferred Securities, means, as of the date of determination, all Preferred Securities theretofore executed and delivered under this Trust Agreement, except: (a) Preferred Securities theretofore canceled by the Property Trustee or delivered to the Property Trustee for cancellation; (b) Preferred Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Property Trustee or any Paying Agent for the Holders of such Preferred Securities; provided that, if such Preferred Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Trust Agreement; and (c) Preferred Securities which have been paid or in exchange for or in lieu of which other Preferred Securities have been executed and delivered pursuant to Sections 504, 505 and 511; provided, 6 12 EXHIBIT 4(b)(2) 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 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 other Obligor upon the Preferred Securities or a Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Depositor or any Affiliate of the Depositor. "Paying Agent" means any paying agent or co-paying agent appointed pursuant to Section 509 and shall initially be the Bank. "Payment Account" means a segregated non-interest-bearing corporate trust account maintained by the Property Trustee with the Bank in its trust department for the benefit of the Securityholders in which all amounts paid in respect of the Debentures shall be held and from which the Property Trustee shall make payments to the Securityholders in accordance with Sections 401 and 402. "Person" means any individual, corporation, partnership, joint venture, trust, limited liability company or corporation, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Security" means an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $25 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. "Preferred Securities Certificate", means a certificate evidencing ownership of Preferred Securities, substantially in the form attached as Exhibit E. "Property Trustee" means the commercial bank or trust company identified as the "Property Trustee," in the Preamble to this Trust Agreement solely in its capacity as Property Trustee of the Trust heretofore formed and continued hereunder and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as herein provided. "Redemption Date" means, with respect to any Trust Security to be redeemed, the date fixed for such redemption by or pursuant to this Trust Agreement; provided that each Debenture Redemption Date and the stated maturity of the Debentures shall be a Redemption Date for a Like Amount of Trust Securities. "Redemption Price" means, with respect to any Trust Security, the Liquidation Amount of such Trust Security, plus accumulated and unpaid Distributions to the Redemption Date, 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. 7 13 EXHIBIT 4(b)(2) "Relevant Trustee" shall have the meaning specified in Section 810. "Securities Register" and "Securities Registrar" have the respective meanings specified in Section 504. "Securityholder" or "Holder" means a Person in whose name a Trust Security or Securities is registered in the Securities Register; any such Person is a beneficial owner within the meaning of the Delaware Business Trust Act. "Trust" means the Delaware business trust created and continued hereby and identified on the cover page to this Trust Agreement. "Trust Agreement" means this Amended and Restated Trust Agreement, as the same may be modified, amended or supplemented in accordance with the applicable provisions hereof, including all exhibits hereto, including, for all purposes of this Trust Agreement and any such modification, amendment or supplement, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this Trust Agreement and any such modification, amendment or supplement, respectively. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939, as amended, is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trust Property" means (a) the Debentures; (b) the rights of the Property Trustee under the Guarantee; (c) any cash on deposit in, or owing to, the Payment Account; and (d) all proceeds and rights in respect of the foregoing and any other property and assets for the time being held or deemed to be held by the Property Trustee pursuant to the trusts of this Trust Agreement. "Trust Security" means any one of the Common Securities or the Preferred Securities. "Trust Securities Certificate" means any one of the Common Securities Certificates or the Preferred Securities Certificates. "Trustees" means, collectively, the Property Trustee, the Delaware Trustee and the Administrative Trustees. "Underwriting Agreement" means the Underwriting Agreement, dated as of March 17, 1997 among the Trust, the Depositor and the Underwriters named therein. ARTICLE II ESTABLISHMENT OF TRUST SECTION 201. NAME. The Trust created and continued hereby shall be known as "1st Source Capital Trust I," as such name may be modified from time to time by the Administrative Trustees following written notice to the Holders 8 14 EXHIBIT 4(b)(2) of Trust Securities and the other Trustees, in which name the Trustees may engage in the transactions contemplated hereby, make and execute contracts and other instruments on behalf of the Trust and sue and be sued. SECTION 202. OFFICE OF DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS. The address of the Delaware Trustee in the State of Delaware is c/o Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration, or such other address in the State of Delaware as the Delaware Trustee may designate by written notice to the Securityholders and the Depositor. The principal executive office of the Trust is c/o 1st Source Corporation, 100 North Michigan Street, South Bend, Indiana 46601. SECTION 203. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL EXPENSES. The Trustees acknowledge receipt in trust from the Depositor in connection with the Original Trust Agreement of the sum of $10, which constituted the initial Trust Property. The Depositor shall pay organizational expenses of the Trust as they arise or shall, upon request of any Trustee, promptly reimburse such Trustee for any such expenses paid by such Trustee. The Depositor shall make no claim upon the Trust Property for the payment of such expenses. SECTION 204. ISSUANCE OF PREFERRED SECURITIES. On March 17, 1997, the Depositor and an Administrative Trustee, on behalf of the Trust and pursuant to the Original Trust Agreement, executed and delivered the Underwriting Agreement. Contemporaneously with the execution and delivery of this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 502 and deliver in accordance with the Underwriting Agreement, Preferred Securities Certificates, registered in the name of the Persons entitled thereto, in an aggregate amount of 1,000,000 Preferred Securities having an aggregate Liquidation Amount of $25,000,000 against receipt of the aggregate purchase price of such Preferred Securities of $25,000,000, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. If the underwriters exercise their Option and there is an Option Closing Date (as such terms are defined in the Underwriting Agreement), then an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 502 and deliver in accordance with the Underwriting Agreement, additional Preferred Securities Certificates, registered in the name of the Persons entitled thereto, in an aggregate amount of up to 100,000 Preferred Securities having an aggregate Liquidation Amount of up to $2,500,000 against receipt of the aggregate purchase price of such Preferred Securities equal to the product of $25 multiplied by the number of Preferred Securities purchased pursuant to the Option which amount such Administrative Trustee shall promptly deliver to the Property Trustee. SECTION 205. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND PURCHASE OF DEBENTURES. (a) Contemporaneously with the execution and delivery of this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 502 and deliver to the Depositor, Common Securities Certificates, registered in the name of the Depositor, in an aggregate amount of 30,928 Common Securities having an aggregate Liquidation Amount of $773,200 against payment by the Depositor of such amount. Contemporaneously therewith, an Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase from the Depositor Debentures, registered in the name of the Property Trustee on 9 15 EXHIBIT 4(b)(2) behalf of the Trust and having an aggregate principal amount equal to $25,773,200, and, in satisfaction of the purchase price for such Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the Depositor the sum of $25,773,200. (b) If the underwriters exercise the Option and there is an Option Closing Date, then an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 502 and deliver to the Depositor, additional Common Securities Certificates, registered in the name of the Depositor, in an aggregate amount of up to 3,093 Common Securities having an aggregate Liquidation Amount of up to $77,325 against payment by the Depositor of an amount equal to the product of $25 multiplied by the number of additional Common Securities purchased by the Depositor. Contemporaneously therewith, an Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase from the Depositor, Debentures, registered in the name of the Property Trustee on behalf of the Trust and having an aggregate principal amount of up to $2,577,325, and, in satisfaction of the purchase price of such Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the Depositor an amount equal to the sum of the amounts received from one of the Administrative Trustees pursuant to the first sentence of this Section 205(b) and the last sentence of Section 204. SECTION 206. DECLARATION OF TRUST. The exclusive purposes and functions of the Trust are (a) to issue and sell Trust Securities and use the proceeds from such sale to acquire the Debentures; and (b) to engage in those activities necessary, convenient or incidental thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to have all the rights, powers and duties to the extent set forth herein, and the Trustees hereby accept such appointment. The Property Trustee hereby declares that it shall hold the Trust Property in trust upon and subject to the conditions set forth herein for the benefit of the Securityholders. The Administrative Trustees shall have all rights, powers and duties set forth herein and in accordance with applicable law with respect to accomplishing the purposes of the Trust. The Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities, of the Property Trustee or the Administrative Trustees set forth herein. The Delaware Trustee shall be one of the Trustees of the Trust for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Delaware Business Trust Act. SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS. (a) The Trustees shall conduct the affairs of the Trust in accordance with the terms of this Trust Agreement. Subject to the limitations set forth in paragraph (b) of this Section 207 and Article VIII, and in accordance with the following provisions (i) and (ii), the Administrative Trustees shall have the authority to enter into all transactions and agreements determined by the Administrative Trustees to be appropriate in exercising the authority, express or implied, otherwise granted to the Administrative Trustees under this Trust Agreement, and to perform all acts in furtherance thereof, including without limitation, the following: (i) As among the Trustees, each Administrative Trustee, acting singly or jointly, shall have the power and authority to act on behalf of the Trust with respect to the following matters: (A) the issuance and sale of the Trust Securities; (B) to cause the Trust to enter into, and to execute, deliver and perform on behalf 10 16 EXHIBIT 4(b)(2) of the Trust, the Expense Agreement and such other agreements or documents as may be necessary or desirable in connection with the purposes and function of the Trust; (C) assisting in the registration of the 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 of the Preferred Securities upon The Nasdaq Stock Market's National Market or such securities exchange or exchanges as shall be determined by the Depositor and the registration of the Preferred Securities under the Exchange Act, and the preparation and filing of all periodic and other reports and other documents pursuant to the foregoing; (E) the sending of notices (other than notices of default) and other information regarding the Trust Securities and the Debentures to the Securityholders in accordance with this Trust Agreement; (F) the appointment of a Paying Agent, Authenticating Agent and Securities Registrar in accordance with this Trust Agreement; (G) to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware; (H) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Preferred Securities or to enable the Trust to effect the purposes for which the Trust was created; and (I) the taking of any action incidental to the foregoing as the Administrative Trustees may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder). (ii) As among the Trustees, the Property Trustee shall have the power, duty and authority to act on behalf of the Trust with respect to the following matters: (A) the establishment of the Payment Account; (B) the receipt of the Debentures; (C) the collection of interest, principal and any other payments made in respect of the Debentures in the Payment Account; (D) the distribution of amounts owed to the Securityholders in respect of the Trust Securities in accordance with the terms of this Trust Agreement; 11 17 EXHIBIT 4(b)(2) (E) the exercise of all of the rights, powers and privileges of a holder of the Debentures; (F) the sending of notices of default and other information regarding the Trust Securities and the Debentures to the Securityholders in accordance with this Trust Agreement; (G) the distribution of the Trust Property in accordance with the terms of this Trust Agreement; (H) to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Trust; (I) after an Event of Default, the taking of any action incidental to the foregoing as the Property Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement and protect and conserve the Trust Property for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder); (J) registering transfers of the Trust Securities in accordance with this Trust Agreement; and (K) except as otherwise provided in this Section 207(a)(ii), the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Administrative Trustees set forth in Section 207(a)(i). (b) So long as this Trust Agreement remains in effect, the Trust (or the Trustees acting on behalf of the Trust) shall not undertake any business, activities or transaction except as expressly provided herein or contemplated hereby. In particular, the Trustees shall not (i) acquire any investments or engage in any activities not authorized by this Trust Agreement; (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Securityholders, except as expressly provided herein; (iii) take any action that would cause the Trust to fail or cease to qualify as a "grantor trust" for United States federal income tax purposes; (iv) incur any indebtedness for borrowed money or issue any other debt; or (v) take or consent to any action that would result in the placement of a Lien on any of the Trust Property. The Administrative Trustees shall defend all claims and demands of all Persons at any time claiming any Lien on any of the Trust Property adverse to the interest of the Trust or the Securityholders in their capacity as Securityholders. (c) In connection with the issue and sale of the 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 and the Debentures, 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 to do any and all such acts, other than actions 12 18 EXHIBIT 4(b)(2) which must be taken by or on behalf of the Trust, and advise the Trustees of actions they must take on behalf of the Trust, and prepare for execution and filing any documents to be executed and filed by the Trust or on behalf of the Trust, as the Depositor deems necessary or advisable in order to comply with the applicable laws of any such States; (iii) the preparation for filing by the Trust and execution on behalf of the Trust of an application to The Nasdaq Stock Market's National Market or a national stock exchange or other organizations for listing upon notice of issuance of any Preferred Securities and to file or cause an Administrative Trustee to file thereafter with such exchange or organization such notifications and documents as may be necessary from time to time; (iv) the preparation for filing by the Trust with the Commission and the execution on behalf of the Trust of a registration statement on Form 8-A relating to the registration of the Preferred Securities under Section 12(b) or 12(g) of the Exchange Act, including any amendments thereto; (v) the negotiation of the terms of, and the execution and delivery of, the Underwriting Agreement providing for the sale of the Preferred Securities; and (vi) the taking of any other actions necessary or desirable to carry out any of the foregoing activities. (d) Notwithstanding anything herein to the contrary, the Administrative Trustees are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that the Trust shall not be deemed to be an "investment company" required to be registered under the Investment Company Act, shall be classified as a "grantor trust" and not as an association taxable as a corporation for United States federal income tax purposes and so that the Debentures shall be treated as indebtedness of the Depositor for United States federal income tax purposes. In this connection, subject to Section 1002, the Depositor and the Administrative Trustees are authorized to take any action, not inconsistent with applicable law or this Trust Agreement, that each of the Depositor and the Administrative Trustees determines in their discretion to be necessary or desirable for such purposes. SECTION 208. ASSETS OF TRUST. The assets of the Trust shall consist of the Trust Property. SECTION 209. TITLE TO TRUST PROPERTY. Legal title to all Trust Property shall be vested at all times in the Property Trustee (in its capacity as such) and shall be held and administered by the Property Trustee for the benefit of the Securityholders in accordance with this Trust Agreement. 13 19 EXHIBIT 4(b)(2) ARTICLE III PAYMENT ACCOUNT SECTION 301. PAYMENT ACCOUNT. (a) On or prior to the Closing Date, the Property Trustee shall establish the Payment Account. The Property Trustee and any agent of the Property Trustee shall have exclusive control and sole right of withdrawal with respect to the Payment Account for the purpose of making deposits and withdrawals from the Payment Account in accordance with this Trust Agreement. All monies and other property deposited or held from time to time in the Payment Account shall be held by the Property Trustee in the Payment Account for the exclusive benefit of the Securityholders and for distribution as herein provided, including (and subject to) any priority of payments provided for herein. (b) The Property Trustee shall deposit in the Payment Account, promptly upon receipt, all payments of principal of or interest on, and any other payments or proceeds with respect to, the Debentures. Amounts held in the Payment Account shall not be invested by the Property Trustee pending distribution thereof. ARTICLE IV DISTRIBUTIONS; REDEMPTION SECTION 401. DISTRIBUTIONS. (a) Distributions on the Trust Securities shall be cumulative, and shall accumulate whether or not there are funds of the Trust available for the payment of Distributions. Distributions shall accumulate from March 21, 1997, and, except during any Extended Interest Payment Period with respect to the Debentures, shall be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing on June 30, 1997. If any date on which a Distribution is otherwise payable on the Trust Securities is not a Business Day, then the payment of such Distribution shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) with the same force and effect as if made on such date (each date on which distributions are payable in accordance with this Section 401(a), a "Distribution Date"). (b) The Trust Securities represent undivided beneficial interests in the Trust Property. The Distributions on the Trust Securities shall be at a rate of 9.00% per annum of the Liquidation Amount of the Trust Securities. The amount of Distributions payable for any full period shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of Distributions for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30 day months. During any Extended Interest Payment Period with respect to the Debentures, Distributions on the Preferred Securities shall be deferred for a period equal to the Extended Interest Payment Period. The amount of Distributions payable for any period shall include the Additional Amounts, if any. (c) Distributions on the Trust Securities shall be made by the Property Trustee solely from the Payment Account and shall be payable on each Distribution Date only to the extent that the Trust has funds then on hand and immediately available by 12:30 p.m. on each Distribution Date in the Payment Account for the payment of such Distributions. 14 20 EXHIBIT 4(b)(2) (d) 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 the 15th day of the month in which the Distribution is payable. SECTION 402. REDEMPTION. (a) On each Debenture Redemption Date and on the stated maturity of the Debentures, the Trust shall be required to redeem a Like Amount of Trust Securities at the Redemption Price. (b) Notice of redemption shall be given by the Property Trustee by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date to each Holder of Trust Securities to be redeemed, at such Holder's address appearing in the Securities Register. The Property Trustee shall have no responsibility for the accuracy of any CUSIP number contained in such notice. All notices of redemption shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) the CUSIP number; (iv) if less than all the Outstanding Trust Securities are to be redeemed, the identification and the aggregate Liquidation Amount of the particular Trust Securities to be redeemed; and (v) that, on the Redemption Date, the Redemption Price shall become due and payable upon each such Trust Security to be redeemed and that Distributions thereon shall cease to accumulate on and after said date. (c) The Trust Securities redeemed on each Redemption Date shall be redeemed at the Redemption Price with the proceeds from the contemporaneous redemption of Debentures. Redemptions of the Trust Securities shall be made and the Redemption Price shall be payable on each Redemption Date only to the extent that the Trust has immediately available funds then on hand and available in the Payment Account for the payment of such Redemption Price. (d) If the Property Trustee gives a notice of redemption in respect of any Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption Date, subject to Section 402(c), the Property Trustee shall deposit with the Paying Agent funds sufficient to pay the applicable Redemption Price and shall give the Paying Agent irrevocable instructions and authority to pay the Redemption Price to the 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 shall 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, and such Trust Securities shall 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 15 21 EXHIBIT 4(b)(2) date shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) with the same force and effect as if made on such date. In the event that payment of the Redemption Price in respect of any Trust Securities called for redemption is improperly withheld or refused and not paid either by the Trust or by the Depositor pursuant to the Guarantee, Distributions on such Trust Securities shall continue to accumulate, at the then applicable rate, from the Redemption Date originally established by the Trust for such Trust Securities to the date such Redemption Price is actually paid, in which case the actual payment date shall be the date fixed for redemption for purposes of calculating the Redemption Price. (e) Payment of the Redemption Price on the Trust Securities shall be made to the record holders thereof as they appear on the Securities Register for the Trust Securities on the relevant record date, which shall be the date 15 days prior to the relevant Redemption Date. (f) Subject to Section 403(a), if less than all the Outstanding Trust Securities are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of Trust Securities to be redeemed shall be allocated on a pro rata basis (based on Liquidation Amounts) among the Common Securities and the Preferred Securities. The particular Preferred Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Property Trustee from the Outstanding Preferred Securities not previously called for redemption, 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 or an integral multiple of $25 in excess thereof) of the Liquidation Amount of Preferred Securities of a denomination larger than $25. The Property Trustee shall promptly notify the Securities 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 which has been or is to be redeemed. SECTION 403. SUBORDINATION OF COMMON SECURITIES. (a) Payment of Distributions (including Additional Amounts, if applicable) on, and the Redemption Price of, the Trust Securities, as applicable, shall be made, subject to Section 402(f), pro rata among the Common Securities and the 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. (b) In the case of the occurrence of any Event of Default resulting from a Debenture Event of Default, the Holder of Common Securities shall be deemed to have waived any right to act with respect to 16 22 EXHIBIT 4(b)(2) any such Event of Default under this Trust Agreement until the effect of all such Events of Default with respect to the Preferred Securities shall have been cured, waived or otherwise eliminated. Until any such Event of Default under this Trust Agreement with respect to the Preferred Securities shall have been so cured, waived or otherwise eliminated, the Property Trustee shall act solely on behalf of the Holders of the Preferred Securities and not the Holder of the Common Securities, and only the Holders of the Preferred Securities shall have the right to direct the Property Trustee to act on their behalf. SECTION 404. PAYMENT PROCEDURES. Payments of Distributions (including Additional Amounts, if applicable) in respect of the 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. Payments in respect of the Common Securities shall be made in such manner as shall be mutually agreed between the Property Trustee and the Common Securityholder. SECTION 405. TAX RETURNS AND REPORTS. The Administrative Trustees shall prepare (or cause to be prepared), at the Depositor's expense, and file all United States federal, state and local tax and information returns and reports required to be filed by or in respect of the Trust. In this regard, the Administrative Trustees shall (a) prepare and file (or cause to be prepared and filed) the appropriate Internal Revenue Service 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 required to be furnished to such Securityholder or the information required to be provided on such form. The Administrative Trustees shall provide the Depositor with a copy of all such returns and reports promptly after such filing or furnishing. The Property Trustee shall comply with United States federal withholding and backup withholding tax laws and information reporting requirements with respect to any payments to Securityholders under the Trust Securities. SECTION 406. PAYMENT OF TAXES, DUTIES, ETC. OF TRUST. Upon receipt under the Debentures of Additional Interest, the Property Trustee, at the direction of an Administrative Trustee or the Depositor, shall promptly pay any taxes, duties or governmental charges of whatsoever nature (other than withholding taxes) imposed on the Trust by the United States or any other taxing authority. SECTION 407. PAYMENTS UNDER INDENTURE. Any amount payable hereunder to any Holder of Preferred Securities shall be reduced by the amount of any corresponding payment such Holder has directly received under the Indenture pursuant to Section 514(b) or (c) hereof. 17 23 EXHIBIT 4(b)(2) ARTICLE V TRUST SECURITIES CERTIFICATES SECTION 501. INITIAL OWNERSHIP. Upon the creation of the Trust and the contribution by the Depositor pursuant to Section 203 and until the issuance of the Trust Securities, and at any time during which no Trust Securities are outstanding, the Depositor shall be the sole beneficial owner of the Trust. SECTION 502. TRUST SECURITIES CERTIFICATES. The Preferred Securities Certificates shall be issued in minimum denominations of $25 Liquidation Amount and integral multiples of $25 in excess thereof, and the Common Securities Certificates shall be issued in denominations of $25 Liquidation Amount and integral multiples thereof. The Trust Securities Certificates shall be executed on behalf of the Trust by manual or facsimile signature of at least one Administrative Trustee. Trust Securities Certificates bearing the manual or facsimile signatures of individuals who were, at the time when such signatures shall have been affixed, authorized to sign on behalf of the Trust, shall be validly issued and entitled to the benefits of this Trust Agreement, notwithstanding that such individuals or any of them shall have ceased to be so authorized prior to the delivery of such Trust Securities Certificates or did not hold such offices at the date of delivery of such Trust Securities Certificates. A transferee of a Trust Securities Certificate shall become a Securityholder, and shall be entitled to the rights and subject to the obligations of a Securityholder hereunder, upon due registration of such Trust Securities Certificate in such transferee's name pursuant to Sections 504 and 511. SECTION 503. EXECUTION, AUTHENTICATION AND DELIVERY OF TRUST SECURITIES CERTIFICATES. (a) On the Closing Date and on the date on which the Underwriter exercises the Option, as applicable (the "Option Closing Date"), the Administrative Trustees shall cause Trust Securities Certificates, in an aggregate Liquidation Amount as provided in Sections 204 and 205, to be executed on behalf of the Trust by at least one of the Administrative Trustees and delivered to or upon the written order of the Depositor, signed by its Chief Executive Officer, President, any Vice President, the Treasurer or any Assistant Treasurer without further corporate action by the Depositor, in authorized denominations. (b) A Preferred Securities Certificate shall not be valid until authenticated by the manual signature of an authorized signatory of the Property Trustee. The signature shall be conclusive evidence that the Preferred Securities Certificate has been authenticated under this Trust Agreement. Each Preferred Security Certificate shall be dated the date of its authentication. (c) Upon the written order of the Trust signed by the Administrative Trustee, the Property Trustee shall authenticate and make available for delivery the Preferred Securities Certificates. (d) The Property Trustee may appoint an Authenticating Agent acceptable to the Trust to authenticate the Preferred Securities. An Authenticating Agent may authenticate the Preferred Securities whenever the Property Trustee may do so. Each reference in this Trust Agreement to authentication by the Property Trustee includes authentication by such agent. An Authenticating Agent has the same rights as the Property Trustee to deal with the Depositor or the Trust. 18 24 EXHIBIT 4(b)(2) SECTION 504. REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED SECURITIES CERTIFICATES. (a) The Depositor shall keep or cause to be kept, at the office or agency maintained pursuant to Section 508, a register or registers for the purpose of registering Trust Securities Certificates and transfers and exchanges of Preferred Securities Certificates (herein referred to as the "Securities Register") in which the registrar designated by the Depositor (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 510 in the case of the Common Securities Certificates) and registration of transfers and exchanges of Preferred Securities Certificates as herein provided. The Property Trustee shall be the initial Securities Registrar. (b) Upon surrender for registration of transfer of any Preferred Securities Certificate at the office or agency maintained pursuant to Section 508, the Administrative Trustees or any one of them shall execute and deliver, in the name of the designated transferee or transferees, one or more new Preferred Securities Certificates in authorized denominations of a like aggregate Liquidation Amount dated the date of execution by such Administrative Trustee or Trustees. The Securities Registrar shall not be required to register the transfer of any Preferred Securities that have been called for 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 508. (c) 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 the Property 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 canceled and subsequently disposed of by the Property Trustee in accordance with its customary practice. The Trust shall not be required to (i) issue, register the transfer of, or exchange any Preferred Securities during a period beginning at the opening of business 15 calendar days before the date of mailing of a notice of redemption of any Preferred Securities called for redemption and ending at the close of business on the day of such mailing; or (ii) register the transfer of or exchange any Preferred Securities so selected for redemption, in whole or in part, except the unredeemed portion of any such Preferred Securities being redeemed in part. (d) 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 505. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES CERTIFICATES. If (a) any mutilated Trust Securities Certificate shall be surrendered to the Securities Registrar, or if the Securities Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Trust Securities Certificate; and (b) there shall be delivered to the Securities Registrar and the Administrative Trustees such security or indemnity as may be required by them to save each of them harmless, then in the absence of notice that such Trust Securities Certificate shall have been acquired by a bona fide purchaser, the Administrative Trustees, or any one of them, on behalf of the Trust shall execute and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities Certificate of like class, tenor and denomination. In connection with the 19 25 EXHIBIT 4(b)(2) issuance of any new Trust Securities Certificate under this Section 505, the Administrative Trustees or the Securities Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Trust Securities Certificate issued pursuant to this Section 505 shall constitute conclusive evidence of an undivided beneficial interest in the assets of the Trust, as if originally issued, whether or not the lost, stolen or destroyed Trust Securities Certificate shall be found at any time. SECTION 506. PERSONS DEEMED SECURITYHOLDERS. The Trustees, the Paying Agent and the Securities Registrar shall treat the Person in whose name any Trust Securities Certificate shall be registered in the Securities Register as the owner of such Trust Securities Certificate for the purpose of receiving Distributions and for all other purposes whatsoever, and neither the Trustees nor the Securities Registrar shall be bound by any notice to the contrary. SECTION 507. ACCESS TO LIST OF SECURITYHOLDERS' NAMES AND ADDRESSES. At any time when the Property Trustee is not also acting as the Securities Registrar, the Administrative Trustees or the Depositor shall furnish or cause to be furnished to the Property Trustee (a) semi-annually on or before January 15 and July 15 in each year, a list, in such form as the Property Trustee may reasonably require, of the names and addresses of the Securityholders as of the most recent record date; and (b) promptly after receipt by any Administrative Trustee or the Depositor of a request therefor from the Property Trustee in order to enable the Property Trustee to discharge its obligations under this Trust Agreement, in each case to the extent such information is in the possession or control of the Administrative Trustees or the Depositor and is not identical to a previously supplied list or has not otherwise been received by the Property Trustee in its capacity as Securities Registrar. The rights of Securityholders to communicate with other Securityholders with respect to their rights under this Trust Agreement or under the Trust Securities, and the corresponding rights of the Trustee shall be as provided in the Trust Indenture Act. Each Holder, by receiving and holding a Trust Securities Certificate, and each owner shall be deemed to have agreed not to hold the Depositor, the Property Trustee or the Administrative Trustees accountable by reason of the disclosure of its name and address, regardless of the source from which such information was derived. SECTION 508. MAINTENANCE OF OFFICE OR AGENCY. The Administrative Trustees shall maintain in a location or locations designated by the Administrative Trustees, 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 Corporate Trust Office of the Property Trustee, Two International Place, 4th Floor, Boston, Massachusetts 02110, as the principal corporate trust office for such purposes. The Administrative Trustees shall give prompt written notice to the Depositor and to the Securityholders of any change in the location of the Securities Register or any such office or agency. SECTION 509. APPOINTMENT OF PAYING AGENT. The Paying Agent shall initially be the Property Trustee, and any co-paying agent chosen by the Property Trustee, and acceptable to the Administrative Trustees and the Depositor. The Paying Agent shall 20 26 EXHIBIT 4(b)(2) make Distributions to Securityholders from the Payment Account and shall report the amounts of such Distributions to the Property Trustee and the Administrative Trustees. Any Paying Agent shall have the revocable power to withdraw funds from the Payment Account for the purpose of making the Distributions referred to above. The Administrative Trustees may revoke such power and remove the Paying Agent if such Trustees determine in their sole discretion that the Paying Agent shall have failed to perform its obligations under this Trust Agreement in any material respect. Any Person acting as Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Administrative Trustees, the Property Trustee and the Depositor. In the event that the Property Trustee shall no longer be the Paying Agent or a successor Paying Agent shall resign or its authority to act be revoked, the Administrative Trustees shall appoint a successor that is acceptable to the Property Trustee and the Depositor to act as Paying Agent (which shall be a bank or trust company). The Administrative Trustees shall cause such successor Paying Agent or any additional Paying Agent appointed by the Administrative Trustees to execute and deliver to the Trustees an instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Trustees that as Paying Agent, such successor Paying Agent or additional Paying Agent shall hold all sums, if any, held by it for payment to the Securityholders in trust for the benefit of the Securityholders entitled thereto until such sums shall be paid to such Securityholders. The Paying Agent shall return all unclaimed funds to the Property Trustee and, upon removal of a Paying Agent, such Paying Agent shall also return all funds in its possession to the Property Trustee. The provisions of Sections 801, 803 and 806 shall apply to the Property Trustee also in its role as Paying Agent, for so long as the Property Trustee shall act as Paying Agent and, to the extent applicable, to any other paying agent appointed hereunder. Any reference in this Trust Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise. SECTION 510. 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, any attempted transfer of the Common Securities (other than a transfer in connection with a merger or consolidation of the Depositor into another corporation pursuant to Section 12.1 of the Indenture) shall be void. The Administrative Trustees shall cause each Common Securities Certificate issued to the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE". SECTION 511. PREFERRED SECURITIES CERTIFICATES. (a) Each owner shall receive a Preferred Securities Certificate representing such owner's interest in such Preferred Securities. Upon the issuance of Preferred Securities Certificates, the Trustees shall recognize the record holders of the Preferred Securities Certificates as Securityholders. The Preferred Securities Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrative Trustees, as evidenced by the execution thereof by the Administrative Trustees or any one of them. (b) A single Common Securities Certificate representing the Common Securities shall be issued to the Depositor in the form of a definitive Common Securities Certificate. SECTION 512. [INTENTIONALLY OMITTED]. SECTION 513. [INTENTIONALLY OMITTED]. 21 27 EXHIBIT 4(b)(2) SECTION 514. RIGHTS OF SECURITYHOLDERS. (a) The legal title to the Trust Property is vested exclusively in the Property Trustee (in its capacity as such) in accordance with Section 209, and the Securityholders shall not have any right or title therein other than the undivided beneficial interest in the assets of the Trust conferred by their Trust Securities and they shall have no right to call for any partition or division of property, profits or rights of the Trust except as described below. The Trust Securities shall be personal property giving only the rights specifically set forth therein and in this Trust Agreement. The Trust Securities shall have no preemptive or similar rights. When issued and delivered to Holders of the Preferred Securities against payment of the purchase price therefor, the Preferred Securities shall be fully paid and nonassessable interests in 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 to the Depositor and the Debenture Trustee; and upon any such declaration such principal amount of and the accrued interest on all of the Debentures shall become immediately due and payable, provided that the payment of principal and interest on such Debentures shall remain subordinated to the extent provided in the Indenture. (c) For so long as any Preferred Securities remain outstanding, if, upon a Debenture Event of Default arising from the failure to pay interest or principal on the Debentures, the Holders of any Preferred Securities then Outstanding shall, to the fullest extent permitted by law, have the right to directly institute proceedings for enforcement of payment to such Holders of principal of or interest on the Debentures having a principal amount equal to the Liquidation Amount of the Preferred Securities of such Holders. ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS; VOTING SECTION 601. LIMITATIONS ON VOTING RIGHTS. (a) Except as provided in this Section 601, in Sections 514, 810 and 1002 and in the Indenture and as otherwise required by law, no Holder of Preferred Securities shall have any right to vote or in any manner otherwise control the administration, operation and management of the 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 waivable under Article VII of the Indenture; (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable; or 22 28 EXHIBIT 4(b)(2) (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 outstanding 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 the Outstanding Preferred Securities, except by a subsequent vote of the Holders of the Outstanding Preferred Securities. The Property Trustee shall notify each Holder of the Outstanding 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 Trustees shall, at the expense of the Depositor, obtain an Opinion of Counsel experienced in such matters to the effect that the Trust shall continue to be classified as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes on account of such action. (c) If any proposed amendment to the Trust Agreement provides for, or the Trustees otherwise propose to effect, (i) any action that would adversely affect in any material respect the powers, preferences or special rights of the 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 shall be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of the Holders of at least a majority in Liquidation Amount of the Outstanding Preferred Securities. No amendment to this Trust Agreement may be made if, as a result of such amendment, the Trust would cease to be classified as a grantor trust or would be classified as an association taxable as a corporation for United States federal income tax purposes. SECTION 602. NOTICE OF MEETINGS. Notice of all meetings of the Preferred Securityholders, stating the time, place and purpose of the meeting, shall be given by the Property Trustee pursuant to Section 1008 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. SECTION 603. MEETINGS OF PREFERRED SECURITYHOLDERS. (a) No annual meeting of Securityholders is required to be held. The Administrative Trustees, however, shall call a meeting of Securityholders to vote on any matter in respect of which Preferred Securityholders are entitled to vote upon the written request of the Preferred Securityholders of 25% of the Outstanding Preferred Securities (based upon their aggregate Liquidation Amount) and the Administrative Trustees or the Property Trustee may, at any time in their discretion, call a meeting of Preferred Securityholders to vote on any matters as to which the Preferred Securityholders are entitled to vote. (b) Preferred Securityholders of record of 50% of the Outstanding Preferred Securities (based upon their aggregate Liquidation Amount), present in person or by proxy, shall constitute a quorum at any meeting of Securityholders. 23 29 EXHIBIT 4(b)(2) (c) If a quorum is present at a meeting, an affirmative vote by the Preferred Securityholders of record present, in person or by proxy, holding more than a majority of the Preferred Securities (based upon their aggregate Liquidation Amount) held by the Preferred Securityholders of record present, either in person or by proxy, at such meeting shall constitute the action of the Securityholders, unless this Trust Agreement requires a greater number of affirmative votes. SECTION 604. VOTING RIGHTS. Securityholders shall be entitled to one vote for each $25 of Liquidation Amount represented by their Trust Securities in respect of any matter as to which such Securityholders are entitled to vote. SECTION 605. PROXIES, ETC. At any meeting of Securityholders, any Securityholder entitled to vote thereat may vote by proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Administrative Trustees, or with such other officer or agent of the Trust as the Administrative Trustees may direct, for verification prior to the time at which such vote shall be taken. When Trust Securities are held jointly by several persons, any one of them may vote at any meeting in person or by proxy in respect of such Trust Securities, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Trust Securities. A proxy purporting to be executed by or on behalf of a Securityholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. No proxy shall be valid more than three years after its date of execution. SECTION 606. SECURITYHOLDER ACTION BY WRITTEN CONSENT. Any action which may be taken by Securityholders at a meeting may be taken without a meeting if Securityholders holding more than a majority of all Outstanding Trust Securities (based upon their aggregate Liquidation Amount) entitled to vote in respect of such action (or such larger proportion thereof as shall be required by any express provision of this Trust Agreement) shall consent to the action in writing (based upon their aggregate Liquidation Amount). SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES. For the purposes of determining the Securityholders who are entitled to notice of and to vote at any meeting or by written consent, or to participate in any Distribution on the Trust Securities in respect of which a record date is not otherwise provided for in this Trust Agreement, or for the purpose of any other action, the Administrative Trustees may from time to time fix a date, not more than 90 days prior to the date of any meeting of Securityholders or the payment of Distribution or other action, as the case may be, as a record date for the determination of the identity of the Securityholders of record for such purposes. SECTION 608. ACTS OF SECURITYHOLDERS. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Trust Agreement to be given, made or taken by Securityholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders in person or by an agent duly appointed in writing; and, except as otherwise expressly provided herein, such action 24 30 EXHIBIT 4(b)(2) shall become effective when such instrument or instruments are delivered to an Administrative Trustee. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Securityholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Trust Agreement and (subject to Section 801) conclusive in favor of the Trustees, if made in the manner provided in this Section 608. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which any Trustee receiving the same deems sufficient. (c) The ownership of Preferred Securities shall be proved by the Securities Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Securityholder of any Trust Security shall bind every future Securityholder of the same Trust Security and the Securityholder of every Trust Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustees or the Trust in reliance thereon, whether or not notation of such action is made upon such Trust Security. (e) Without limiting the foregoing, a Securityholder entitled hereunder to take any action hereunder with regard to any particular Trust Security may do so with regard to all or any part of the Liquidation Amount of such Trust Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such Liquidation Amount. (f) A Securityholder may institute a legal proceeding directly against the Depositor under the Guarantee to enforce its rights under the Guarantee without first instituting a legal proceeding against the Guarantee Trustee (as defined in the Guarantee), the Trust or any Person. SECTION 609. INSPECTION OF RECORDS. Upon reasonable notice to the Administrative Trustees and the Property Trustee, the records of the Trust shall be open to inspection and copying by Securityholders and their authorized representatives during normal business hours for any purpose reasonably related to such Securityholder's interest as a Securityholder. ARTICLE VII REPRESENTATIONS AND WARRANTIES SECTION 701. REPRESENTATIONS AND WARRANTIES OF BANK AND PROPERTY TRUSTEE. The Bank and the Property Trustee, each severally on behalf of and as to itself, as of the date hereof, 25 31 EXHIBIT 4(b)(2) and each successor Property Trustee at the time of the successor Property Trustee's acceptance of its appointment as Property Trustee hereunder (the term "Bank" being used to refer to such successor Property Trustee in its separate corporate capacity) hereby represents and warrants (as applicable) for the benefit of the Depositor and the Securityholders that: (a) the Bank is a trust company duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts; (b) the Bank has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement; (c) this Trust Agreement has been duly authorized, executed and delivered by the Property Trustee and constitutes the valid and legally binding agreement of the Property Trustee enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors, rights and to general equity principles; (d) the execution, delivery and performance by the Property Trustee of this Trust Agreement has been duly authorized by all necessary corporate or other action on the part of the Property Trustee and does not require any approval of stockholders of the Bank and such execution, delivery and performance shall not (i) violate the Bank's charter or by-laws; (ii) violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties included in the Trust Property pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Property Trustee or the Bank is a party or by which it is bound; or (iii) violate any law, governmental rule or regulation of the United States or the Commonwealth of Massachusetts, as the case may be, governing the banking or trust powers of the Bank or the Property Trustee (as appropriate in context) or any order, judgment or decree applicable to the Property Trustee or the Bank; (e) neither the authorization, execution or delivery by the Property Trustee of this Trust Agreement nor the consummation of any of the transactions by the Property Trustee contemplated herein or therein requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to any governmental authority or agency under any existing federal law governing the banking or trust powers of the Bank or the Property Trustee, as the case may be, under the laws of the United States or the Commonwealth of Massachusetts; and (f) there are no proceedings pending or, to the best of the Property Trustee's knowledge, threatened against or affecting the Bank or the Property Trustee in any court or before any governmental authority, agency or arbitration board or tribunal which, individually or in the aggregate, would materially and adversely affect the Trust or would question the right, power and authority of the Property Trustee to enter into or perform its obligations as one of the Trustees under this Trust Agreement. SECTION 702. REPRESENTATIONS AND WARRANTIES OF DELAWARE BANK AND DELAWARE TRUSTEE. The Delaware Bank and the Delaware Trustee, each severally on behalf of and as to itself, as of the date hereof, and each successor Delaware Trustee at the time of the successor Delaware Trustee's acceptance 26 32 EXHIBIT 4(b)(2) of appointment as Delaware Trustee hereunder (the term "Delaware Bank" being used to refer to such successor Delaware Trustee in its separate corporate capacity), hereby represents and warrants (as applicable) for the benefit of the Depositor and the Securityholders that: (a) the Delaware Bank is a Delaware banking corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) the Delaware Bank has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement; (c) this Trust Agreement has been duly authorized, executed and delivered by the Delaware Trustee and constitutes the valid and legally binding agreement of the Delaware Trustee enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors, rights and to general equity principles; (d) the execution, delivery and performance by the Delaware Trustee of this Trust Agreement has been duly authorized by all necessary corporate or other action on the part of the Delaware Trustee and does not require any approval of stockholders of the Delaware Bank and such execution, delivery and performance shall not (i) violate the Delaware Bank's charter or by-laws; (ii) violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties included in the Trust Property pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Delaware Bank or the Delaware Trustee is a party or by which it is bound; or (iii) violate any law, governmental rule or regulation of the United States or the State of Delaware, as the case may be, governing the banking or trust powers of the Delaware Bank or the Delaware Trustee (as appropriate in context) or any order, judgment or decree applicable to the Delaware Bank or the Delaware Trustee; (e) neither the authorization, execution or delivery by the Delaware Trustee of this Trust Agreement nor the consummation of any of the transactions by the Delaware Trustee contemplated herein or therein requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to any governmental authority or agency under any existing federal law governing the banking or trust powers of the Delaware Bank or the Delaware Trustee, as the case may be, under the laws of the United States or the State of Delaware; and (f) there are no proceedings pending or, to the best of the Delaware Trustee's knowledge, threatened against or affecting the Delaware Bank or the Delaware Trustee in any court or before any governmental authority, agency or arbitration board or tribunal which, individually or in the aggregate, would materially and adversely affect the Trust or would question the right, power and authority of the Delaware Trustee to enter into or perform its obligations as one of the Trustees under this Trust Agreement. SECTION 703. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR. The Depositor hereby represents and warrants for the benefit of the Securityholders that: (a) the Trust Securities Certificates issued on the Closing Date or the Option Closing Date, if 27 33 EXHIBIT 4(b)(2) applicable, on behalf of the Trust have been duly authorized and shall be, as of such date or dates, if applicable, duly and validly executed, issued and delivered by the Administrative Trustees pursuant to the terms and provisions of, and in accordance with the requirements of, this Trust Agreement and the Securityholders shall be, as of such date or dates, if applicable, 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 Bank, the Property Trustee or the Delaware Trustee, as the case may be, of this Trust Agreement. ARTICLE VIII TRUSTEES SECTION 801. CERTAIN DUTIES AND RESPONSIBILITIES. (a) The duties and responsibilities of the Trustees shall be as provided by this Trust Agreement and, in the case of the Property Trustee, by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Trust Agreement shall require the Trustees to expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers, if they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. No Administrative Trustee nor the Delaware Trustee shall be liable for its act or omissions hereunder except as a result of its own gross negligence or willful misconduct. The Property Trustee's liability shall be determined under the Trust Indenture Act. Whether or not therein expressly so provided, every provision of this Trust Agreement relating to the conduct or affecting the liability of or affording protection to the Trustees shall be subject to the provisions of this Section 801. To the extent that, at law or in equity, the Delaware Trustee or an Administrative Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to the Securityholders, the Delaware Trustee or such Administrative Trustee shall not be liable to the Trust or to any Securityholder for such Trustee's good faith reliance on the provisions of this Trust Agreement. The provisions of this Trust Agreement, to the extent that they restrict the duties and liabilities of the Delaware Trustee or the Administrative Trustees otherwise existing at law or in equity, are agreed by the Depositor and the Securityholders to replace such other duties and liabilities of the Delaware Trustee and the Administrative Trustees, as the case may be. (b) All payments made by the Property Trustee or a Paying Agent in respect of the Trust Securities shall be made only from the revenue and proceeds from the Trust Property and only to the extent that there shall be sufficient revenue or proceeds from the Trust Property to enable the Property Trustee or a Paying Agent to make payments in accordance with the terms hereof. With respect to the relationship of each Securityholder and the Trustee, each Securityholder, by its acceptance of a Trust Security, agrees that it shall look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to it as herein provided and that the Trustees are not personally liable to it for any amount distributable in respect of any Trust Security or for any other liability in respect of any Trust Security. This Section 801(b) does not limit the liability of the Trustees expressly set forth elsewhere in this Trust Agreement or, in the case of the Property Trustee, in the Trust Indenture Act. 28 34 EXHIBIT 4(b)(2) (c) No provision of this Trust Agreement shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) the Property Trustee shall not be liable for any error of judgment made in good faith by an authorized officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (ii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in Liquidation Amount of the Trust Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Trust Agreement; (iii) the Property Trustee's sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Payment Account shall be to deal with such property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Trust Agreement and the Trust Indenture Act; (iv) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree with the Depositor and money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Payment Account maintained by the Property Trustee pursuant to Section 301 and except to the extent otherwise required by law; and (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 negligence, default or misconduct of the Administrative Trustees or the Depositor. SECTION 802. CERTAIN NOTICES. (a) Within 5 Business Days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee shall transmit, in the manner and to the extent provided in Section 1008, notice of such Event of Default to the Securityholders, the Administrative Trustees and the Depositor, unless such Event of Default shall have been cured or waived. For purposes of this Section 802 the term "Event of Default" means any event that is, or after notice or lapse of time or both would become, an Event of Default. (b) The Administrative Trustees shall transmit to the Securityholders, in the manner and to the extent provided in Section 1008, notice of the Depositor's election to begin or further extend an Extended Interest Payment Period on the Debentures (unless such election shall have been revoked) within the time specified for transmitting such notice to the holders of the Debentures pursuant to the Indenture as originally executed. 29 35 EXHIBIT 4(b)(2) SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE. Subject to the provisions of Section 801: (a) the Property Trustee may rely and shall be protected in acting or refraining from acting in good faith upon any resolution, Opinion of Counsel, certificate, written representation of a Holder or transferee, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) if (i) in performing its duties under this Trust Agreement the Property Trustee is required to decide between alternative courses of action; or (ii) in construing any of the provisions of this Trust Agreement the Property Trustee finds the same ambiguous or inconsistent with other provisions contained herein; or (iii) the Property Trustee is unsure of the application of any provision of this Trust Agreement, then, except as to any matter as to which the 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 10 Business Days after it has delivered such notice, or such reasonably shorter period of time set forth in such notice (which to the extent practicable shall not be less than 2 Business Days), it may, but shall be under no duty to, take or refrain from taking such action not inconsistent with this Trust Agreement as it shall deem advisable and in the best interests of the Securityholders, in which event the Property Trustee shall have no liability except for its own bad faith, negligence or willful misconduct; (c) any direction or act of the Depositor or the Administrative Trustees contemplated by this Trust Agreement shall be sufficiently evidenced by an Officers' Certificate; (d) whenever in the administration of this Trust Agreement, the Property Trustee shall deem it desirable that a matter be established before undertaking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officer's Certificate which, upon receipt of such request, shall be promptly delivered by the Depositor or the Administrative Trustees; (e) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement, any filing under tax or securities laws or any filing under tax or securities laws) or any rerecording, refiling or reregistration thereof; (f) the Property Trustee may consult with counsel of its choice (which counsel may be counsel to the Depositor or any of its Affiliates) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and, in accordance with such advice, such counsel may be counsel to the Depositor or any of its Affiliates, and may include any of its employees; the Property Trustee shall have the right at any time to seek instructions concerning the administration of this Trust Agreement from any court of competent jurisdiction; 30 36 EXHIBIT 4(b)(2) (g) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request or direction of any of the Securityholders pursuant to this Trust Agreement, unless such Securityholders shall have offered to the Property Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (h) the Property Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other evidence of indebtedness or other paper or document, unless requested in writing to do so by one or more Securityholders, but the Property Trustee may make such further inquiry or investigation into such facts or matters as it may see fit; (i) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, provided that the Property Trustee shall be responsible for its own negligence or recklessness with respect to selection of any agent or attorney appointed by it hereunder; (j) whenever in the administration of this Trust Agreement the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder the Property Trustee (i) may request instructions from the Holders of the Trust Securities which instructions may only be given by the Holders of the same proportion in Liquidation Amount of the Trust Securities as would be entitled to direct the Property Trustee under the terms of the Trust Securities in respect of such remedy, right or action; (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received; and (iii) shall be protected in acting in accordance with such instructions; and (k) except as otherwise expressly provided by this Trust Agreement, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Trust Agreement. No provision of this Trust Agreement shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Property Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Property Trustee shall be construed to be a duty. SECTION 804. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The Recitals contained herein and in the Trust Securities Certificates shall be taken as the statements of the Trust, and the Trustees do not assume any responsibility for their correctness. The Trustees shall not be accountable for the use or application by the Depositor of the proceeds of the Debentures. SECTION 805. MAY HOLD SECURITIES. Any Trustee or any other agent of any Trustee or the Trust, in its individual or any other capacity, may become the owner or pledgee of Trust Securities and, subject to Sections 808 and 813 and except as provided in the definition of the term "Outstanding" in Article I, may otherwise deal with the Trust with the same rights it would have if it were not a Trustee or such other agent. 31 37 EXHIBIT 4(b)(2) SECTION 806. COMPENSATION; INDEMNITY; FEES. The Depositor agrees: (a) to pay to the Trustees from time to time reasonable compensation for all services rendered by them hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) except as otherwise expressly provided herein, to reimburse the Trustees upon request for all reasonable expenses, disbursements and advances incurred or made by the Trustees in accordance with any provision of this Trust Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to such Trustee's negligence, bad faith or willful misconduct (or, in the case of the Administrative Trustees or the Delaware Trustee, any such expense, disbursement or advance as may be attributable to its, his or her gross negligence, bad faith or willful misconduct); and (c) to indemnify each of the Trustees or any predecessor Trustee for, and to hold the Trustees harmless against, any loss, damage, claims, liability, penalty or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Trust Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder, except any such expense, disbursement or advance as may be attributable to such Trustee's negligence, bad faith or willful misconduct (or, in the case of the Administrative Trustees or the Delaware Trustee, any such expense, disbursement or advance as may be attributable to its, his or her gross negligence, bad faith or willful misconduct). No Trustee may claim any Lien or charge on Trust Property as a result of any amount due pursuant to this Section 806. SECTION 807. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF TRUSTEES. (a) There shall at all times be a Property Trustee hereunder with respect to the Trust Securities. The Property Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section 807, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Property Trustee with respect to the Trust Securities shall cease to be eligible in accordance with the provisions of this Section 807, it shall resign immediately in the manner and with the effect hereinafter specified in this Article VIII. (b) There shall at all times be one or more Administrative Trustees hereunder with respect to the Trust Securities. Each Administrative Trustee shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more persons authorized to bind that entity. (c) There shall at all times be a Delaware Trustee with respect to the Trust Securities. The Delaware Trustee shall either be (i) a natural person who is at least 21 years of age and a resident of the State of Delaware; or (ii) a legal entity with its principal place of business in the State of Delaware and that 32 38 EXHIBIT 4(b)(2) otherwise meets the requirements of applicable Delaware law that shall act through one or more persons authorized to bind such entity. SECTION 808. CONFLICTING INTERESTS. If the Property Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Property Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Trust Agreement. SECTION 809. CO-TRUSTEES AND SEPARATE TRUSTEE. (a) Unless an Event of Default shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust Property may at the time be located, the Depositor shall have power to appoint, and upon the written request of the Property Trustee, the Depositor shall for such purpose join with the Property Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to appoint, one or more Persons approved by the Property Trustee either to act as co-trustee, jointly with the Property Trustee, of all or any part of such Trust Property, or to the extent required by law to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in the capacity aforesaid, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section 809. If the Depositor does not join in such appointment within 15 days after the receipt by it of a request so to do, or in case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make such appointment. Any co-trustee or separate trustee appointed pursuant to this Section 809 shall either be (i) a natural person who is at least 21 years of age and a resident of the United States; or (ii) a legal entity with its principal place of business in the United States that shall act through one or more persons authorized to bind such entity. (b) Should any written instrument from the Depositor be required by any co-trustee or separate trustee so appointed for more fully confirming to such co-trustee or separate trustee such property, title, right, or power, any and all such instruments shall, on request, be executed, acknowledged, and delivered by the Depositor. (c) Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms, namely: (i) The Trust Securities shall be executed and delivered and all rights, powers, duties and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Trustees specified hereunder, shall be exercised, solely by such Trustees and not by such co-trustee or separate trustee. (ii) The rights, powers, duties and obligations hereby conferred or imposed upon the Property Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed by the Property Trustee or by the Property Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Property Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, 33 39 EXHIBIT 4(b)(2) duties and obligations shall be exercised and performed by such co-trustee or separate trustee. (iii) The Property Trustee at any time, by an instrument in writing executed by it, with the written concurrence of the Depositor, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section 809, and, in case a Debenture Event of Default has occurred and is continuing, the Property Trustee shall have the power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Depositor. Upon the written request of the Property Trustee, the Depositor shall join with the Property Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to effectuate such resignation or removal. A successor to any co-trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section 809. (iv) No co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Property Trustee or any other trustee hereunder. (v) The Property Trustee shall not be liable by reason of any act of a co-trustee or separate trustee. (vi) Any Act of Holders delivered to the Property Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee. SECTION 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. (a) No resignation or removal of any Trustee (the "Relevant Trustee") and no appointment of a successor Trustee pursuant to this Article VIII shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 811. (b) Subject to the immediately preceding paragraph, the Relevant Trustee may resign at any time with respect to the Trust Securities by giving written notice thereof to the Securityholders. If the instrument of acceptance by the successor Trustee required by Section 811 shall not have been delivered to the Relevant Trustee within 30 days after the giving of such notice of resignation, the Relevant Trustee may petition, at the expense of the Depositor, any court of competent jurisdiction for the appointment of a successor Relevant Trustee with respect to the Trust Securities. (c) Unless a Debenture Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by Act of the Common Securityholder. If a Debenture Event of Default shall have occurred and be continuing, the Property Trustee or the Delaware Trustee, or both of them, may be removed at such time by Act of the Holders of a majority in 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 by the Common Securityholder at any time. (d) If any Trustee shall resign, be removed or become incapable of acting as Trustee, or if a vacancy shall occur in the office of any Trustee for any cause, at a time when no Debenture Event of Default shall have occurred and be continuing, the Common Securityholder, by Act of the Common Securityholder delivered to the retiring Trustee, shall promptly appoint a successor Trustee or Trustees with respect to the Trust Securities and the Trust, and the successor Trustee shall comply with the applicable requirements of Section 811. If the Property Trustee or the Delaware Trustee shall resign, be removed or become incapable 34 40 EXHIBIT 4(b)(2) of continuing to act as the Property Trustee or the Delaware Trustee, as the case may be, at a time when a Debenture Event of Default shall have occurred and is continuing, the 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 with respect to the Trust Securities and the Trust, and such successor Trustee shall comply with the applicable requirements of Section 811. If an Administrative Trustee shall resign, be removed or become incapable of acting as Administrative Trustee, at a time when a Debenture Event of Default shall have occurred and be continuing, the Common Securityholder, by Act of the Common Securityholder delivered to an Administrative Trustee, shall promptly appoint a successor Administrative Trustee or Administrative Trustees with respect to the Trust Securities and the Trust, and such successor Administrative Trustee or Administrative Trustees shall comply with the applicable requirements of Section 811. If no successor Relevant Trustee with respect to the Trust Securities shall have been so appointed by the Common Securityholder or the Preferred Securityholders and accepted appointment in the manner required by Section 811, any Securityholder who has been a Securityholder of Trust Securities on behalf of himself and all others similarly situated may petition a court of competent jurisdiction for the appointment of a successor Relevant Trustee with respect to the Trust Securities. (e) The Property Trustee shall give notice of each resignation and each removal of a Trustee and each appointment of a successor Trustee to all Securityholders in the manner provided in Section 1008 and shall give notice to the Depositor. Each notice shall include the name of the successor Relevant Trustee and the address of its Corporate Trust Office if it is the Property Trustee. (f) Notwithstanding the foregoing or any other provision of this Trust Agreement, in the event any Administrative Trustee or a Delaware Trustee who is a natural person dies or becomes, in the opinion of the Depositor, incompetent or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by (a) the unanimous act of remaining Administrative Trustees if there are at least two of them; or (b) otherwise by the Depositor (with the successor in each case being a Person who satisfies the eligibility requirement for Administrative Trustees set forth in Section 807). SECTION 811. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. (a) In case of the appointment hereunder of a successor Relevant Trustee with respect to the Trust Securities and the Trust, the retiring Relevant Trustee and each successor Relevant Trustee with respect to the Trust Securities shall execute and deliver an instrument hereto wherein each successor Relevant Trustee shall accept such appointment and which shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Relevant Trustee all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust and upon the execution and delivery of such instrument the resignation or removal of the retiring Relevant Trustee shall become effective to the extent provided therein and each such successor Relevant Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust; but, on request of the Trust or any successor Relevant Trustee such retiring Relevant Trustee shall duly assign, transfer and deliver to such successor Relevant Trustee all Trust Property, all proceeds thereof and money held by such retiring Relevant Trustee hereunder with respect to the Trust Securities and the Trust. (b) Upon request of any such successor Relevant Trustee, the Trust shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Relevant Trustee all 35 41 EXHIBIT 4(b)(2) such rights, powers and trusts referred to in the immediately preceding paragraph, as the case may be. (c) No successor Relevant Trustee shall accept its appointment unless at the time of such acceptance such successor Relevant Trustee shall be qualified and eligible under this Article VIII. SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any Person into which the Property Trustee, the Delaware Trustee or any Administrative Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which such Relevant Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of such Relevant Trustee, shall be the successor of such Relevant Trustee hereunder, provided such Person shall be otherwise qualified and eligible under this Article VIII, without the execution or filing of any paper or any further act on the part of any of the parties hereto. SECTION 813. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR TRUST. If and when the Property Trustee or the Delaware Trustee shall be or become a creditor of the Depositor or the Trust (or any other obligor upon the Debentures or the Trust Securities), the Property Trustee or the Delaware Trustee, as the case may be, shall be subject to and shall take all actions necessary in order to comply with the provisions of the Trust Indenture Act regarding the collection of claims against the Depositor or Trust (or any such other obligor). SECTION 814. REPORTS BY PROPERTY TRUSTEE. (a) Not later than July 15 of each year commencing with July 15, 1997, the Property Trustee shall transmit to all Securityholders in accordance with Section 1008, and to the Depositor, a brief report dated as of such May 15 with respect to: (i) its eligibility under Section 807 or, in lieu thereof, if to the best of its knowledge it has continued to be eligible under said Section, a written statement to such effect; and (ii) any change in the property and funds in its possession as Property Trustee since the date of its last report and any action taken by the Property Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Trust Securities. (b) In addition the Property Trustee shall transmit to Securityholders such reports concerning the Property Trustee and its actions under this Trust Agreement as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Property Trustee with The Nasdaq Stock Market's National Market, and each national securities exchange or other organization upon which the Trust Securities are listed, and also with the Commission and the Depositor. SECTION 815. REPORTS TO PROPERTY TRUSTEE. The Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property 36 42 EXHIBIT 4(b)(2) Trustee such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314(a) of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. SECTION 816. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. Each of the Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Trust Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers' Certificate. SECTION 817. NUMBER OF TRUSTEES. (a) The number of Trustees shall be five, provided that the Holder of all of the Common Securities by written instrument may increase or decrease the number of Administrative Trustees. The Property Trustee and the Delaware Trustee may be the same Person. (b) If a Trustee ceases to hold office for any reason and the number of Administrative Trustees is not reduced pursuant to Section 817(a), or if the number of Trustees is increased pursuant to Section 817(a), a vacancy shall occur. The vacancy shall be filled with a Trustee appointed in accordance with Section 810. (c) The death, resignation, retirement, removal, bankruptcy, incompetence or incapacity to perform the duties of a Trustee shall not operate to annul the Trust. Whenever a vacancy in the number of Administrative Trustees shall occur, until such vacancy is filled by the appointment of an Administrative Trustee in accordance with Section 810, the Administrative Trustees in office, regardless of their number (and notwithstanding any other provision of this Agreement), shall have all the powers granted to the Administrative Trustees and shall discharge all the duties imposed upon the Administrative Trustees by this Trust Agreement. SECTION 818. DELEGATION OF POWER. (a) Any Administrative Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 207(a); and (b) The Administrative Trustees shall have power to delegate from time to time to such of their number or to the Depositor the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Administrative Trustees or otherwise as the Administrative Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. SECTION 819. VOTING. Except as otherwise provided in this Trust Agreement, the consent or approval of the Administrative Trustees shall require consent or approval by not less than a majority of the Administrative Trustees, unless 37 43 EXHIBIT 4(b)(2) there are only two, in which case both must consent. ARTICLE IX TERMINATION, LIQUIDATION AND MERGER SECTION 901. TERMINATION UPON EXPIRATION DATE. Unless earlier dissolved, the Trust shall automatically dissolve on March 31, 2052 (the "Expiration Date") subject to distribution of the Trust Property in accordance with Section 904. SECTION 902. EARLY TERMINATION. The first to occur of any of the following events is an "Early Termination Event:" (a) the occurrence of a Bankruptcy Event in respect of, or the dissolution or liquidation of, the Depositor; (b) delivery of written direction to the Property Trustee by the Depositor at any time (which direction is wholly optional and within the discretion of the Depositor) to dissolve the Trust and distribute the Debentures to Securityholders in exchange for the Preferred Securities in accordance with Section 904; (c) the redemption of all of the Preferred Securities in connection with the redemption of all of the Debentures; and (d) the entrance of an order for dissolution of the Trust by a court of competent jurisdiction. SECTION 903. TERMINATION. The respective obligations and responsibilities of the Trustees and the Trust created and continued hereby shall terminate upon the latest to occur of the following: (a) the distribution by the Property Trustee to Securityholders upon the liquidation of the Trust pursuant to Section 904, or upon the redemption of all of the Trust Securities pursuant to Section 402, of all amounts required to be distributed hereunder upon the final payment of the Trust Securities; (b) the payment of any expenses owed by the Trust; (c) the discharge of all administrative duties of the Administrative Trustees, including the performance of any tax reporting obligations with respect to the Trust or the Securityholders; and (d) the filing of a Certificate of Cancellation by the Administrative Trustee under the Delaware Business Trust Act. SECTION 904. LIQUIDATION. (a) If an Early Termination Event specified in clause (a), (b), or (d) of Section 902 occurs or upon the Expiration Date, the Trust shall be liquidated by the Trustees as expeditiously as the Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, to each Securityholder a Like Amount of Debentures, subject to Section 904(d). Notice of liquidation shall be given by the Property Trustee by first-class mail, postage prepaid, mailed not later than 30 nor more than 60 days prior to the Liquidation Date to each Holder of Trust Securities at such Holder's address appearing in the Securities Register. All notices of liquidation shall: 38 44 EXHIBIT 4(b)(2) (i) state the Liquidation Date; (ii) state that from and after the Liquidation Date, the Trust Securities shall no longer be deemed to be Outstanding and any Trust Securities Certificates not surrendered for exchange shall be deemed to represent a Like Amount of Debentures; and (iii) provide such information with respect to the mechanics by which Holders may exchange Trust Securities Certificates for Debentures, or, if Section 904(d) applies, receive a Liquidation Distribution, as the Administrative Trustees or the Property Trustee shall deem appropriate. (b) Except where Section 902(c) or 904(d) applies, in order to effect the liquidation of the Trust and distribution of the Debentures to Securityholders, the Property Trustee shall establish a record date for such distribution (which shall be not more than 45 days prior to the Liquidation Date) and, either itself acting as exchange agent or through the appointment of a separate exchange agent, shall establish such procedures as it shall deem appropriate to effect the distribution of Debentures in exchange for the Outstanding Trust Securities Certificates. (c) Except where Section 902(c) or 904(d) applies, after the Liquidation Date, (i) the Trust Securities shall no longer be deemed to be outstanding; (ii) certificates representing a Like Amount of Debentures shall be issued to holders of Trust Securities Certificates upon surrender of such certificates to the Administrative Trustees or their agent for exchange; (iii) the Depositor shall use its reasonable efforts to have the Debentures listed on The Nasdaq Stock Market's National Market or on such other securities exchange or other organization as the Preferred Securities are then listed or traded; (iv) any Trust Securities Certificates not so surrendered for exchange shall be deemed to represent a Like Amount of Debentures, accruing interest at the rate provided for in the Debentures from the last Distribution Date on which a Distribution was made on such Trust Securities Certificates until such certificates are so surrendered (and until such certificates are so surrendered, no payments of interest or principal shall be made to holders of Trust Securities Certificates with respect to such Debentures); and (v) all rights of Securityholders holding Trust Securities shall cease, except the right of such Securityholders to receive Debentures upon surrender of Trust Securities Certificates. (d) In the event that, notwithstanding the other provisions of this Section 904, whether because of an order for dissolution entered by a court of competent jurisdiction or otherwise, distribution of the Debentures in the manner provided herein is determined by the Property Trustee not to be practical, the Trust Property shall be liquidated, and the Trust shall be dissolved, wound-up or terminated, by the Property Trustee in such manner as the Property Trustee determines. In such event, on the date of the dissolution, winding-up or other termination of the Trust, Securityholders shall be entitled to receive out of the assets of the Trust available for distribution to Securityholders, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, an amount equal to the Liquidation Amount per Trust Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). If, upon any such dissolution, winding-up or termination, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then, subject to the next succeeding sentence, the amounts payable by the Trust on the Trust Securities shall be paid on a pro rata basis (based upon Liquidation Amounts). The holder of the Common Securities shall be entitled to receive Liquidation Distributions upon any such dissolution, winding-up or termination pro rata (determined as aforesaid) with Holders of Preferred Securities, except that, if a Debenture Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over 39 45 EXHIBIT 4(b)(2) the Common Securities. SECTION 905. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF TRUST. The Trust may not merge with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other Person, except pursuant to this Section 905. At the request of the Depositor, with the consent of the Administrative Trustees and without the consent of the holders of the Preferred Securities, the Property Trustee or the Delaware Trustee, the Trust may merge with or into, consolidate, amalgamate, be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to a trust organized as such under the laws of any State; provided, that (i) such successor entity either (a) expressly assumes all of the obligations of the Trust with respect to the 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 substantially the same powers and duties as the Property Trustee as the holder of the Debentures; (iii) the Successor Securities are listed or traded, or any Successor Securities shall be listed or traded upon notification of issuance, on any national securities exchange or other organization on which the Preferred Securities are then listed, if any; (iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any Successor Securities) in any material respect; (v) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Depositor has received an Opinion of Counsel to the effect that (a) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the 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 shall be required to register as an "investment company" under the Investment Company Act; and (vi) 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 or replacement would cause the Trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. ARTICLE X MISCELLANEOUS PROVISIONS SECTION 1001. LIMITATION OF RIGHTS OF SECURITYHOLDERS. The death or incapacity of any Person having an interest, beneficial or otherwise, in Trust Securities shall not operate to terminate this Trust Agreement, nor entitle the legal representatives or heirs of such Person or any Securityholder for such Person to claim an accounting, take any action or bring any proceeding in any court for a partition or winding-up of the arrangements contemplated hereby, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. 40 46 EXHIBIT 4(b)(2) SECTION 1002. AMENDMENT. (a) This Trust Agreement may be amended from time to time by the Trustees and the Depositor, without the consent of any Securityholders, (i) as provided in Section 811 with respect to acceptance of appointment by a successor Trustee; (ii) to cure any ambiguity, correct or supplement any provision herein or therein which may be inconsistent with any other provision herein or therein, or to make any other provisions with respect to matters or questions arising under this Trust Agreement, that shall not be inconsistent with the other provisions of this Trust Agreement; or (iii) to modify, eliminate or add to any provisions of this Trust Agreement to such extent as shall be necessary to ensure that the Trust shall be classified for United States federal income tax purposes as a grantor trust at all times that any Trust Securities are outstanding or to ensure that the Trust shall not be required to register as an "investment company" under the Investment Company Act; provided, however, that in the case of clause (ii), such action shall not adversely affect in any material respect the interests of any Securityholder, and any amendments of this Trust Agreement shall become effective when notice thereof is given to the Securityholders. (b) Except as provided in Section 601(c) or Section 1002(c) hereof, any provision of this Trust Agreement may be amended by the Trustees and the Depositor (i) with the consent of Trust Securityholders representing not less than a majority (based upon Liquidation Amounts) of the Trust Securities then Outstanding; and (ii) upon receipt by the Trustees of an Opinion of Counsel to the effect that such amendment or the exercise of any power granted to the Trustees in accordance with such amendment shall not affect the Trust's status as a grantor trust for United States federal income tax purposes or the Trust's exemption from status of an "investment company" under the Investment Company Act. (c) In addition to and notwithstanding any other provision in this Trust Agreement, without the consent of each affected Securityholder (such consent being obtained in accordance with Section 603 or 606 hereof), this Trust Agreement may not be amended to (i) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Securities as of a specified date; or (ii) restrict the right of a Securityholder to institute suit for the enforcement of any such payment on or after such date; notwithstanding any other provision herein, without the unanimous consent of the Securityholders (such consent being obtained in accordance with Section 603 or 606 hereof), this paragraph (c) of this Section 1002 may not be amended. (d) Notwithstanding any other provisions of this Trust Agreement, no Trustee shall enter into or consent to any amendment to this Trust Agreement which would cause the Trust to fail or cease to qualify for the exemption from status of an "investment company" under the Investment Company Act or to fail or cease to be classified as a grantor trust for United States federal income tax purposes. (e) Notwithstanding anything in this Trust Agreement to the contrary, without the consent of the Depositor, this Trust Agreement may not be amended in a manner which imposes any additional obligation on the Depositor. (f) In the event that any amendment to this Trust Agreement is made, the Administrative Trustees shall promptly provide to the Depositor a copy of such amendment. (g) Neither the Property Trustee nor the Delaware Trustee shall be required to enter into any amendment to this Trust Agreement which affects its own rights, duties or immunities under this Trust Agreement. The Property Trustee shall be entitled to receive an Opinion of Counsel and an Officers' 41 47 EXHIBIT 4(b)(2) Certificate stating that any amendment to this Trust Agreement is in compliance with this Trust Agreement. SECTION 1003. SEPARABILITY. In case any provision in this Trust Agreement or in the Trust Securities Certificates shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1004. GOVERNING LAW. THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES). SECTION 1005. PAYMENTS DUE ON NON-BUSINESS DAY. If the date fixed for any payment on any Trust Security shall be a day that is not a Business Day, then such payment need not be made on such date but may be made on the next succeeding day which is a Business Day, with the same force and effect as though made on the date fixed for such payment, and no distribution shall accumulate thereon for the period after such date. SECTION 1006. SUCCESSORS. This Trust Agreement shall be binding upon and shall inure to the benefit of any successor to the Depositor, the Trust or the Relevant Trustee(s), including any successor by operation of law. Except in connection with a consolidation, merger or sale involving the Depositor that is permitted under Article XII of the Indenture and pursuant to which the assignee agrees in writing to perform the Depositor's obligations hereunder, the Depositor shall not assign its obligations hereunder. SECTION 1007. HEADINGS. The Article and Section headings are for convenience only and shall not affect the construction of this Trust Agreement. SECTION 1008. REPORTS, NOTICES AND DEMANDS. (a) 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, (i) 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 (ii) in the case of the Common Securityholder or the Depositor, to 1st Source Corporation, 100 North Michigan Street, South Bend, Indiana 46601, Attention: Chief Financial Officer, facsimile no.: (219) 235-2414. Any notice to Preferred Securityholders shall also be given to such owners as have, within two years preceding the giving of such notice, filed their names and addresses with the Property Trustee for that 42 48 EXHIBIT 4(b)(2) purpose. 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. (b) Any notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon the Trust, the Property Trustee or the Administrative Trustees shall be given in writing addressed (until another address is published by the Trust) as follows: (i) with respect to the Property Trustee to State Street Bank and Trust Company, Two International Place, 4th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Department; (ii) with respect to the Delaware Trustee, to Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration; and (iii) with respect to the Administrative Trustees, to them at the address above for notices to the Depositor, marked "Attention: Administrative Trustees of 1st Source Capital Trust I, c/o Chief Financial Officer, 1st Source Corporation." Such notice, demand or other communication to or upon the Trust or the Property Trustee shall be deemed to have been sufficiently given or made only upon actual receipt of the writing by the Trust or the Property Trustee. SECTION 1009. AGREEMENT NOT TO PETITION. Each of the Trustees and the Depositor agree for the benefit of the Securityholders that, until at least one year and 1 day after the Trust has been terminated in accordance with Article IX, they shall not file, or join in the filing of, a petition against the Trust under any bankruptcy, insolvency, reorganization or other similar law (including, without limitation, the United States Bankruptcy Code of 1978, as amended) (collectively, "Bankruptcy Laws") or otherwise join in the commencement of any proceeding against the Trust under any Bankruptcy Law. In the event the Depositor takes action in violation of this Section 1009, the Property Trustee agrees, for the benefit of Securityholders, that at the expense of the Depositor (which expense shall be paid prior to the filing), it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such petition by the Depositor 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. The provisions of this Section 1009 shall survive the termination of this Trust Agreement. SECTION 1010. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT. (a) This Trust Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Trust Agreement and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee which is a trustee for the purposes of the Trust Indenture Act. (c) If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Trust Agreement by any of the provisions of the Trust Indenture Act, such required provision shall control. If any provision of this Trust Agreement modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Trust Agreement as so modified or to be excluded, as the case may be. (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 43 49 EXHIBIT 4(b)(2) Trust. [Remainder of page intentionally left blank.] 44 50 EXHIBIT 4(b)(2) SECTION 1011. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND INDENTURE. THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS. 1ST SOURCE CORPORATION as Depositor By: /s/ Christopher J. Murphy III --------------------------------------------- Name: Christopher J. Murphy III Title: President and Chief Executive Officer STATE STREET BANK AND TRUST COMPANY, as Property Trustee By: /s/ Paul D. Allen --------------------------------------------- Name: Paul D. Allen Title: Vice President 45 51 EXHIBIT 4(b)(2) WILMINGTON TRUST COMPANY, as Delaware Trustee By: /s/ W. Chris Sponenberg --------------------------------------------- Name: W. Chris Sponenberg Title: Senior Financial Services Officer /s/ Christopher J. Murphy III ------------------------------------------------ Christopher J. Murphy III, as Administrative Trustee /s/ Wellington D. Jones III ------------------------------------------------ Wellington D. Jones III, as Administrative Trustee /s/ Larry E. Lentych ------------------------------------------------ Larry E. Lentych, as Administrative Trustee 46 52 EXHIBIT 4(b)(2) EXHIBIT A RESTATED CERTIFICATE OF TRUST OF 1ST SOURCE CAPITAL TRUST THIS RESTATED CERTIFICATE OF TRUST OF 1ST SOURCE CAPITAL TRUST (the "Trust"), dated February 27, 1997, is being duly executed and filed by WILMINGTON TRUST COMPANY, a Delaware banking corporation, as trustee to restate the original Certificate of Trust which was filed on February 20, 1997 with the Secretary of State of the State of Delaware under the Delaware Business Trust Act (12 Del. C. Section 3801 et seq.). 1. NAME. The name of the business trust formed hereby is 1ST SOURCE CAPITAL TRUST I. 2. DELAWARE TRUSTEE. The name and business address of the trustee of the Trust in the State of Delaware is Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration. 3. EFFECTIVE DATE. This Certificate of Trust shall be effective on February 27, 1997. IN WITNESS WHEREOF, the undersigned, being a trustee of the Trust, has executed this Restated Certificate of Trust as of the date first above written. WILMINGTON TRUST COMPANY, as trustee By:----------------------------------------- Name:--------------------------------------- Title:-------------------------------------- A-1 53 EXHIBIT 4(b)(2) EXHIBIT B [Intentionally Omitted] A-2 54 EXHIBIT 4(b)(2) EXHIBIT C THIS CERTIFICATE IS NOT TRANSFERABLE CERTIFICATE NUMBER 1 NUMBER OF COMMON SECURITIES: ------- CERTIFICATE EVIDENCING COMMON SECURITIES OF 1ST SOURCE CAPITAL TRUST I COMMON SECURITIES (LIQUIDATION AMOUNT $25.00 PER COMMON SECURITY) 1ST SOURCE CAPITAL TRUST I, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that 1st Source Corporation (the "Holder") is the registered owner of - ------------------------------------------- (-------) common securities (the "Common Securities") of the Trust representing undivided beneficial interests in the assets of the Trust and designated the ----% Common Securities (liquidation amount $25.00 per Common Security). In accordance with Section 510 of the Trust Agreement (as defined below), the Common Securities are not transferable and any attempted transfer hereof shall be void. The designations, rights, privileges, restrictions, preferences, and other terms and provisions of the Common Securities are set forth in, and this certificate and the Common Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Trust Agreement of the Trust dated as of March ----, 1997, as the same may be amended from time to time (the "Trust Agreement"), including the designation of the terms of the Common Securities as set forth therein. The Trust shall furnish a copy of the Trust Agreement to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder. IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has executed this certificate this ---- day of March, 1997. 1ST SOURCE CAPITAL TRUST I By------------------------------------------ Larry E. Lentych Administrative Trustee C-1 55 EXHIBIT 4(b)(2) EXHIBIT D AGREEMENT AS TO EXPENSES AND LIABILITIES AGREEMENT AS TO EXPENSES AND LIABILITIES (this "Agreement") dated as of March 21, 1997, between 1ST SOURCE CORPORATION, an Indiana corporation ("the Company"), and 1ST SOURCE CAPITAL TRUST I, a Delaware business trust (the "Trust"). RECITALS WHEREAS, the Trust intends to issue its common securities (the "Common Securities") to, and receive Debentures from, the Company and to issue and sell 1,100,000 9.00% Cumulative Trust Preferred Securities (the "Preferred Securities") with such powers, preferences and special rights and restrictions as are set forth in the Amended and Restated Trust Agreement of the Trust dated as of March 21, 1997, as the same may be amended from time to time (the "Trust Agreement"); WHEREAS, the Company shall directly or indirectly own all of the Common Securities of the Trust and shall issue the Debentures; NOW, THEREFORE, in consideration of the purchase by each holder of the Preferred Securities, which purchase the Company hereby agrees shall benefit the Company and which purchase the Company acknowledges shall be made in reliance upon the execution and delivery of this Agreement, the Company, including in its capacity as holder of the Common Securities, and the Trust hereby agree as follows: ARTICLE I SECTION 1.1. GUARANTEE BY THE COMPANY. Subject to the terms and conditions hereof, the Company, including in its capacity as holder of the Common Securities, hereby irrevocably and unconditionally guarantees to each person or entity to whom the Trust is now or hereafter becomes indebted or liable (the "Beneficiaries") the full payment, when and as due, of any and all Obligations (as hereinafter defined) to such Beneficiaries. As used herein, "Obligations" means any costs, expenses or liabilities of the Trust other than obligations of the Trust to pay to holders of any 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. This Agreement is intended to be for the benefit of, and to be enforceable by, all such Beneficiaries, whether or not such Beneficiaries have received notice hereof. SECTION 1.2. TERM OF AGREEMENT. This Agreement shall terminate and be of no further force and effect upon the later of (a) the date on which full payment has been made of all amounts payable to all holders of all the Preferred Securities (whether upon redemption, liquidation, exchange or otherwise); and (b) the date on which there are no Beneficiaries remaining; provided, however, that this Agreement shall continue to be effective or shall be reinstated, as the case may be, if at any time any holder of Preferred Securities or any Beneficiary must restore payment of any sums paid under the Preferred Securities, under any obligation under the Preferred D-1 56 EXHIBIT 4(b)(2) Securities Guarantee Agreement dated the date hereof by the Company and State Street Bank and Trust Company, as guarantee trustee, or under this Agreement for any reason whatsoever. This Agreement is continuing, irrevocable, unconditional and absolute. SECTION 1.3. WAIVER OF NOTICE. The Company hereby waives notice of acceptance of this Agreement and of any obligation to which it applies or may apply, and the Company hereby waives presentment, demand for payment, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 1.4. NO IMPAIRMENT. The obligations, covenants, agreements and duties of the Company under this Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the extension of time for the payment by the Trust of all or any portion of the obligations or for the performance of any other obligation under, arising out of, or in connection with, the Obligations; (b) any failure, omission, delay or lack of diligence on the part of the Beneficiaries to enforce, assert or exercise any right, privilege, power or remedy conferred on the Beneficiaries with respect to the Obligations or any action on the part of the Trust granting indulgence or extension of any kind; or (c) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust. There shall be no obligation of the Beneficiaries to give notice to, or obtain the consent of, the Company with respect to the happening of any of the foregoing. SECTION 1.5. ENFORCEMENT. A Beneficiary may enforce this Agreement directly against the Company, and the Company waives any right or remedy to require that any action be brought against the Trust or any other person or entity before proceeding against the Company. ARTICLE II SECTION 2.1. BINDING EFFECT. All guarantees and agreements contained in this Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Company and shall inure to the benefit of the Beneficiaries. SECTION 2.2. AMENDMENT. So long as there remains any Beneficiary or any Preferred Securities are outstanding, this Agreement shall not be modified or amended in any manner adverse to such Beneficiary or to the holders of the Preferred Securities. D-2 57 EXHIBIT 4(b)(2) SECTION 2.3. NOTICES. Any notice, request or other communication required or permitted to be given hereunder shall be given in writing by delivering the same by facsimile transmission (confirmed by mail), telex, or by registered or certified mail, addressed as follows (and if so given, shall be deemed given when mailed or upon receipt of an answer back, if sent by telex): 1st Source Capital Trust I c/o 1st Source Corporation 100 North Michigan Street South Bend, Indiana 46601 Facsimile No.: (219) 235-2414 Attention: Chief Financial Officer 1st Source Corporation 100 North Michigan Street South Bend, Indiana 46601 Facsimile No.: (219) 235-2414 Attention: Chief Financial Officer SECTION 2.4. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Indiana (without regard to conflict of laws principles). THIS AGREEMENT is executed as of the day and year first above written. 1ST SOURCE CORPORATION By:---------------------------------------- Christopher J. Murphy III President and Chief Executive Officer 1ST SOURCE CAPITAL TRUST I By:----------------------------------------- Larry E. Lentych Administrative Trustee D-3 58 EXHIBIT 4(b)(2) EXHIBIT E Certificate Number Number of Preferred Securities -------- P- Certificate Evidencing Preferred Securities of 1st Source Capital Trust I ----% Cumulative Trust Preferred Securities (Liquidation Amount $25 per Preferred Security) CUSIP NO. 33645 W 20 0 1st Source Capital Trust I, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that - ---------------- (the "Holder") is the registered owner of ----- preferred securities (the "Preferred Securities") of the Trust representing undivided beneficial interests in the assets of the Trust and designated the ----% Cumulative Trust Preferred Securities (Liquidation Amount $25 per Preferred Security). 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 504 of the Trust Agreement (as defined herein). 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 March ----, 1997, 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 Fixed Rate Preferred Securities Guarantee Agreement entered into by 1st Source Corporation, an Indiana corporation, and State Street Bank and Trust Company, as guarantee trustee, dated as of March ----, 1997 (the "Guarantee"), to the extent provided therein. The Trust shall 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. Unless the Certificate of Authentication has been manually executed by the Authentication Agent, this Certificate is not valid or effective. IN WITNESS WHEREOF, the Administrative Trustees of the Trust have executed this Certificate as of the date hereof. E-1 59 EXHIBIT 4(b)(2) Dated: CERTIFICATE OF AUTHENTICATION This is one of the ------% Cumulative Trust Preferred Securities referred to in the within-mentioned Amended and Restated Trust Agreement. STATE STREET BANK & TRUST COMPANY, as Authentication Agent and Registrar By-------------------------------- Authorized Signature 1ST SOURCE CAPITAL TRUST I By------------------------------------- Christopher J. Murphy III, Trustee By------------------------------------- Wellington D. Jones III, Trustee By------------------------------------- Larry E. Lentych, Trustee E-2 60 EXHIBIT 4(b)(2) [FORM ON REVERSE OF CERTIFICATE] The Trust will furnish without charge to any registered owner of Preferred Securities who so requests, a copy of the Trust Agreement and the Guarantee. Any such request should be in writing and addressed to 1st Source Capital Trust I, c/o 1st Source Corporation, 100 North Michigan Street, South Bend, Indiana 46601 or to the Registrar named on the face of this Certificate. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common TEN ENT - as tenants by the entireties JT TEN - as joint tenants with right of survivorship and not as tenants in common TOD - transfer on death direction in event of owner's death, to person named on face and subject to TOD rules referenced UNIF GIFT MIN ACT - ............Custodian............................... (Cust) (Minor) under Uniform Gifts to Minors Act................................................. (State) UNIF TRF MIN ACT - ...Custodian (until age)............................. (Cust) ........under Uniform Transfers (Minor) to Minors Act...................................... (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, --------- hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- - -------------------------------------- - ------------------------------------------------------------------------------ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ Preferred Securities - ------------------------------------------------------ represented by the within Certificate, and do hereby irrevocably constitute and appoint Attorney - ------------------------------------------------------------------ to transfer the said Preferred Securities on the books of the within named Trust with full power of substitution in the premises. Dated,------------------------- ------------------------------------------------ NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERNATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. SIGNATURE(S) GUARANTEED: - ----------------------------------------------------------- THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED MEDALLION SIGNATURE GUARANTEE PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. E-3 EX-4.(B)(3) 4 FORM OF GUARANTEE AGREEMENT 1 EXHIBIT 4(b)(3) ============================================================================== FIXED RATE PREFERRED SECURITIES GUARANTEE AGREEMENT BY AND BETWEEN 1ST SOURCE CORPORATION AND STATE STREET BANK AND TRUST COMPANY MARCH 21, 1997 ============================================================================== 2 EXHIBIT 4(b)(3) TABLE OF CONTENTS
Page No. ARTICLE I DEFINITIONS AND INTERPRETATION 1 Section 1.1. Definitions and Interpretation 1 ARTICLE II TRUST INDENTURE ACT 4 Section 2.1. Trust Indenture Act; Application 4 Section 2.2. Lists of Holders of Securities 4 Section 2.3. Reports by Preferred Guarantee Trustee 5 Section 2.4. Periodic Reports to Preferred Guarantee Trustee 5 Section 2.5. Evidence of Compliance with Conditions Precedent 5 Section 2.6. Events of Default; Waiver 5 Section 2.7. Event of Default; Notice 5 Section 2.8. Conflicting Interests 6 ARTICLE III POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE 6 Section 3.1. Powers and Duties of Preferred Guarantee Trustee 6 Section 3.2. Certain Rights of Preferred Guarantee Trustee 7 Section 3.3. Not Responsible for Recitals or Issuance of Guarantee 9 ARTICLE IV PREFERRED GUARANTEE TRUSTEE 9 Section 4.1. Preferred Guarantee Trustee; Eligibility 9 Section 4.2. Appointment, Removal and Resignation of Preferred Guarantee Trustees 9 ARTICLE V GUARANTEE 10 Section 5.1. Guarantee 10 Section 5.2. Waiver of Notice and Demand 10 Section 5.3. Obligations not Affected 11 Section 5.4. Rights of Holders 12 Section 5.5. Guarantee of Payment. 12 Section 5.6. Subrogation. 12 Section 5.7. Independent Obligations 12 ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION 12 Section 6.1. Limitation of Transactions 12 Section 6.2. Ranking 13 ARTICLE VII TERMINATION 13 Section 7.1. Termination 13 ARTICLE VIII INDEMNIFICATION 13 Section 8.1. Exculpation 13 i 3 EXHIBIT 4(b)(3) Section 8.2. Indemnification 14 ii 4 EXHIBIT 4(b)(3) ARTICLE IX MISCELLANEOUS 14 Section 9.1. Successors and Assigns 14 Section 9.2. Amendments 14 Section 9.3. Notices 14 Section 9.4. Benefit 15 Section 9.5. Governing Law 15
iii 5 EXHIBIT 4(b)(3) CROSS REFERENCE TABLE
Section of Trust Section of Indenture Act of Guarantee 1939, as amended Agreement ---------------- --------- 310(a) 4.1(a) 310(b) 4.1(c), 2.8 310(c) Not Applicable 311(a) 2.2(b) 311(b) 2.2(b) 311(c) Not Applicable 312(a) 2.2(a) 312(b) 2.2(b) 313 2.3 314(a) 2.4 314(b) Not Applicable 314(c) 2.5 314(d) Not Applicable 314(e) 1.1, 2.5, 3.2 314(f) 2.1, 3.2 315(a) 3.1(d) 315(b) 2.7 315(c) 3.1 315(d) 3.1(d) 316(a) 1.1, 2.6, 5.4 316(b) 5.3 317(a) 3.1 317(b) Not Applicable 318(a) 2.1(a) 318(b) 2.1 318(c) 2.1(b) Note: This Cross-Reference Table does not constitute part of this Agreement and shall not affect the interpretation of any of its terms or provisions.
iv 6 EXHIBIT 4(b)(3) FIXED RATE PREFERRED SECURITIES GUARANTEE AGREEMENT THIS FIXED RATE PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Preferred Securities Guarantee"), dated as of March 21, 1997 is executed and delivered by 1ST SOURCE CORPORATION, an Indiana corporation (the "Guarantor"), and STATE STREET BANK AND TRUST COMPANY, a trust company organized and existing under the laws of the Commonwealth of Massachusetts, as trustee (the "Preferred Guarantee Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Preferred Securities (as defined herein) of 1st Source Capital Trust I, a Delaware statutory business trust (the "Trust"). RECITALS WHEREAS, pursuant to an Amended and Restated Trust Agreement (the "Trust Agreement"), dated as of March 21, 1997, among the trustees of the Trust named therein, the Guarantor, as depositor, and the holders from time to time of undivided beneficial interests in the assets of the Trust, the Trust is issuing on the date hereof 1,100,000 preferred securities, having an aggregate liquidation amount of $27,500,000, designated the 9.00% Cumulative Trust Preferred Securities (the "Preferred Securities"); WHEREAS, as an incentive for the Holders to purchase the Preferred Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Preferred Securities Guarantee, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Preferred Securities Guarantee for the benefit of the Holders. ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.1. DEFINITIONS AND INTERPRETATION. In this Preferred Securities Guarantee, unless the context otherwise requires: (a) capitalized terms used in this Preferred Securities Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) terms defined in the Trust Agreement as at the date of execution of this Preferred Securities Guarantee have the same meaning when used in this Preferred Securities Guarantee; (c) a term defined anywhere in this Preferred Securities Guarantee has the same meaning throughout; (d) all references to "the Preferred Securities Guarantee" or "this Preferred Securities Guarantee" are to this Preferred Securities Guarantee as modified, supplemented or amended from time to time; 7 EXHIBIT 4(b)(3) (e) all references in this Preferred Securities Guarantee to Articles and Sections are to Articles and Sections of this Preferred Securities Guarantee, unless otherwise specified; (f) a term defined in the Trust Indenture Act has the same meaning when used in this Preferred Securities Guarantee, unless otherwise defined in this Preferred Securities Guarantee or unless the context otherwise requires; and (g) a reference to the singular includes the plural and vice versa. "Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act of 1933, as amended, or any successor rule thereunder. "Business Day" means any day other than a day on which federal or state banking institutions in New York, New York are authorized or required by law, executive order or regulation to close or a day on which the Corporate Trust Office of the Preferred Guarantee Trustee is closed for business. "Corporate Trust Office" means the office of the Preferred Guarantee Trustee at which the corporate trust business of the Preferred Guarantee Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Preferred Securities Guarantee is located at Two International Place, 4th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Department. "Covered Person" means any Holder or beneficial owner of Preferred Securities. "Debentures" means the 9.00% Subordinated Debentures due March 31, 2027, of the Debenture Issuer held by the Property Trustee of the Trust. "Debenture Issuer" means the Guarantor. "Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Preferred Securities Guarantee. "Guarantor" means 1st Source Corporation, an Indiana corporation. "Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by the Trust: (i) any accrued and unpaid Distributions that are required to be paid on such Preferred Securities, to the extent the Trust shall have funds available therefor, (ii) the redemption price, including all accrued and unpaid Distributions to the date of redemption (the "Redemption Price"), to the extent the Trust has funds available therefor, with respect to any Preferred Securities called for redemption by the Trust, and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of the Trust (other than in connection with the distribution of Debentures to the Holders in exchange for Preferred Securities as provided in the Trust Agreement), the lesser of (a) the aggregate of the Liquidation Amount and all accrued and unpaid Distributions on the Preferred Securities to the date of payment, to the extent the Trust shall have funds available therefor (the "Liquidation Distribution"), and (b) the amount of assets of the Trust remaining available for distribution to Holders in liquidation of the Trust. 2 8 EXHIBIT 4(b)(3) "Holder" shall mean any holder, as registered on the books and records of the Trust, of any Preferred Securities; provided, however, that, in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor. "Indemnified Person" means the Preferred Guarantee Trustee, any Affiliate of the Preferred Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Preferred Guarantee Trustee. "Indenture" means the Indenture dated as of March 21, 1997 among the Debenture Issuer and State Street Bank and Trust Company, as trustee, and any indenture supplemental thereto pursuant to which 9.00% Subordinated Debentures of the Debenture Issuer are to be issued to the Property Trustee of the Trust. "Liquidation Distribution" has the meaning provided therefor in the definition of Guarantee Payments. "List of Holders" has the meaning set forth in Section 2.2 of this Preferred Securities Guarantee. "Majority in Liquidation Amount of the Preferred Securities" means the holders of more than 50% of the Liquidation Amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all of the Preferred Securities. "Officers' Certificate" means, with respect to any Person, a certificate signed by two authorized officers of such Person. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Preferred Securities Guarantee shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definition relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Preferred Guarantee Trustee" means State Street Bank and Trust Company, until a Successor 3 9 EXHIBIT 4(b)(3) Preferred Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Preferred Securities Guarantee and thereafter means each such Successor Preferred Guarantee Trustee. "Redemption Price" has the meaning provided therefor in the definition of Guarantee Payments. "Responsible Officer" means, with respect to the Preferred Guarantee Trustee, any officer within the Corporate Trust Office of the Preferred Guarantee Trustee, including any vice-president, any assistant vice-president, any assistant secretary, the treasurer, any assistant treasurer or other officer of the Corporate Trust Office of the Preferred 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 Preferred Guarantee Trustee" means a successor Preferred Guarantee Trustee possessing the qualifications to act as Preferred Guarantee Trustee under Section 4.1. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939, as amended, is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. ARTICLE II TRUST INDENTURE ACT SECTION 2.1. TRUST INDENTURE ACT; APPLICATION. (a) This Preferred Securities Guarantee is subject to the provisions of the Trust Indenture Act that are required to be part of this Preferred Securities Guarantee and shall, to the extent applicable, be governed by such provisions. (b) If and to the extent that any provision of this Preferred Securities Guarantee limits, qualifies or conflicts with the duties imposed by Section 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. SECTION 2.2. LISTS OF HOLDERS OF SECURITIES. (a) In the event the Preferred Guarantee Trustee is not also the Securities Registrar, the Guarantor shall provide the Preferred Guarantee Trustee with a list, in such form as the Preferred Guarantee Trustee may reasonably require, of the names and addresses of the Holders of the Preferred Securities (the "List of Holders") as of such date, (i) within 1 Business Day after January 1 and June 30 of each year, and (ii) at any other time within 30 days of receipt by the Guarantor of a written request for a List of Holders as of a date no more than 15 days before such List of Holders is given to the Preferred Guarantee Trustee; provided, that the Guarantor shall not be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Preferred Guarantee Trustee by the Guarantor. The Preferred Guarantee Trustee may destroy any List of Holders previously given to it on 4 10 EXHIBIT 4(b)(3) receipt of a new List of Holders. (b) The Preferred Guarantee Trustee shall comply with its obligations under Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act. SECTION 2.3. REPORTS BY PREFERRED GUARANTEE TRUSTEE. On or before July 15 of each year, the Preferred Guarantee Trustee shall provide to the Holders of the Preferred Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Preferred Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.4. PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE. The Guarantor shall provide to the Preferred Guarantee Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. SECTION 2.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. The Guarantor shall provide to the Preferred Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Preferred Securities Guarantee that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate. SECTION 2.6. EVENTS OF DEFAULT; WAIVER. The Holders of a Majority in liquidation amount of Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Preferred Securities Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 2.7. EVENT OF DEFAULT; NOTICE. (a) The Preferred Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Preferred Securities, notices of all Events of Default actually known to a Responsible Officer of the Preferred Guarantee Trustee, unless such defaults have been cured before the giving of such notice; provided, that the Preferred Guarantee Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Preferred Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Preferred Securities. (b) The Preferred Guarantee Trustee shall not be deemed to have knowledge of any Event of 5 11 EXHIBIT 4(b)(3) Default unless the Preferred Guarantee Trustee shall have received written notice, or of which a Responsible Officer of the Preferred Guarantee Trustee charged with the administration of the Trust Agreement shall have obtained actual knowledge. SECTION 2.8. CONFLICTING INTERESTS. The Trust Agreement shall be deemed to be specifically described in this Preferred Securities Guarantee 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 PREFERRED GUARANTEE TRUSTEE SECTION 3.1. POWERS AND DUTIES OF PREFERRED GUARANTEE TRUSTEE. (a) This Preferred Securities Guarantee shall be held by the Preferred Guarantee Trustee for the benefit of the Holders of the Preferred Securities, and the Preferred Guarantee Trustee shall not transfer this Preferred Securities Guarantee to any Person except a Holder of Preferred Securities exercising his or her rights pursuant to Section 5.4(b) or to a Successor Preferred Guarantee Trustee on acceptance by such Successor Preferred Guarantee Trustee of its appointment to act as Successor Preferred Guarantee Trustee. The right, title and interest of the Preferred Guarantee Trustee shall automatically vest in any Successor Preferred Guarantee Trustee, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Preferred Guarantee Trustee. (b) If an Event of Default actually known to a Responsible Officer of the Preferred Guarantee Trustee has occurred and is continuing, the Preferred Guarantee Trustee shall enforce this Preferred Securities Guarantee for the benefit of the Holders of the Preferred Securities. (c) The Preferred 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 Preferred Securities Guarantee, and no implied covenants shall be read into this Preferred Securities Guarantee against the Preferred Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) and is actually known to a Responsible Officer of the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall exercise such of the rights and powers vested in it by this Preferred Securities Guarantee, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (d) No provision of this Preferred Securities Guarantee shall be construed to relieve the Preferred 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 6 12 EXHIBIT 4(b)(3) all such Events of Default that may have occurred: (A) the duties and obligations of the Preferred Guarantee Trustee shall be determined solely by the express provisions of this Preferred Securities Guarantee, and the Preferred Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Preferred Securities Guarantee, and no implied covenants or obligations shall be read into this Preferred Securities Guarantee against the Preferred Guarantee Trustee; and (B) in the absence of bad faith on the part of the Preferred Guarantee Trustee, the Preferred 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 Preferred Guarantee Trustee and conforming to the requirements of this Preferred Securities Guarantee; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Preferred Securities Guarantee; (ii) the Preferred Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Preferred Guarantee Trustee, unless it shall be proved that the Preferred Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Preferred Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Preferred Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Preferred Guarantee Trustee, or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Preferred Securities Guarantee; and (iv) no provision of this Preferred Securities Guarantee shall require the Preferred 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 Preferred 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 Preferred Securities Guarantee or indemnity, reasonably satisfactory to the Preferred Guarantee Trustee, against such risk or liability is not reasonably assured to it. SECTION 3.2. CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE. (a) Subject to the provisions of Section 3.1: (i) the Preferred 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 believed by it to be genuine and to have been signed, sent or presented by the proper party or parties; 7 13 EXHIBIT 4(b)(3) (ii) any direction or act of the Guarantor contemplated by this Preferred Securities Guarantee shall be sufficiently evidenced by an Officers' Certificate; (iii) whenever, in the administration of this Preferred Securities Guarantee, the Preferred Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Preferred Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor; (iv) the Preferred Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any rerecording, refiling or registration thereof); (v) the Preferred Guarantee Trustee may consult with counsel, and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Preferred Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Preferred Securities Guarantee from any court of competent jurisdiction; (vi) the Preferred Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Preferred Securities Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Preferred Guarantee Trustee such security and indemnity, reasonably satisfactory to the Preferred Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses and the expenses of the Preferred Guarantee Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Preferred Guarantee Trustee; provided that, nothing contained in this Section 3.2(a)(vi) shall be taken to relieve the Preferred Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Preferred Securities Guarantee; (vii) the Preferred 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 Preferred Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (viii) the Preferred Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Preferred Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (ix) any action taken by the Preferred Guarantee Trustee or its agents hereunder shall bind the Holders of the Preferred Securities, and the signature of the Preferred Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required 8 14 EXHIBIT 4(b)(3) to inquire as to the authority of the Preferred Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Preferred Securities Guarantee, both of which shall be conclusively evidenced by the Preferred Guarantee Trustee's or its agent's taking such action; (x) whenever in the administration of this Preferred Securities Guarantee the Preferred Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Preferred Guarantee Trustee (i) may request instructions from the Holders of a Majority in liquidation amount of the Preferred Securities, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in conclusively relying on or acting in accordance with such instructions. (b) No provision of this Preferred Securities Guarantee shall be deemed to impose any duty or obligation on the Preferred 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 Preferred 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 Preferred Guarantee Trustee shall be construed to be a duty. SECTION 3.3. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE. The Recitals contained in this Guarantee shall be taken as the statements of the Guarantor, and the Preferred Guarantee Trustee does not assume any responsibility for their correctness. The Preferred Guarantee Trustee makes no representation as to the validity or sufficiency of this Preferred Securities Guarantee. ARTICLE IV PREFERRED GUARANTEE TRUSTEE SECTION 4.1. PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY. (a) There shall at all times be a Preferred Guarantee Trustee which shall: (i) not be an Affiliate of the Guarantor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Securities and Exchange Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then, for the purposes of this Section 4.1(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. 9 15 EXHIBIT 4(b)(3) (b) If at any time the Preferred Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c). (c) If the Preferred Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 4.2. APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE TRUSTEE. (a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor. (b) The Preferred Guarantee Trustee shall not be removed in accordance with Section 4.2(a) until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor. (c) The Preferred Guarantee Trustee appointed to office shall hold office until a Successor Preferred Guarantee Trustee shall have been appointed or until its removal or resignation. The Preferred Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Preferred Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor and the resigning Preferred Guarantee Trustee. (d) If no Successor Preferred 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 Preferred Guarantee Trustee may petition any court of competent jurisdiction for appointment of a Successor Preferred Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Preferred Guarantee Trustee. (e) No Preferred Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Preferred Guarantee Trustee. (f) Upon termination of this Preferred Securities Guarantee or removal or resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2, the Guarantor shall pay to the Preferred Guarantee Trustee all amounts accrued to the date of such termination, removal or resignation. ARTICLE V GUARANTEE SECTION 5.1. GUARANTEE. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee 10 16 EXHIBIT 4(b)(3) Payments (without duplication of amounts theretofore paid by the Trust), as and when due, regardless of any defense, right of set-off or counterclaim that the Trust may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Trust to pay such amounts to the Holders. SECTION 5.2. WAIVER OF NOTICE AND DEMAND. The Guarantor hereby waives notice of acceptance of this Preferred Securities Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Trust or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 5.3. OBLIGATIONS NOT AFFECTED. The obligations, covenants, agreements and duties of the Guarantor under this Preferred Securities Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Trust of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Trust; (b) the extension of time for the payment by the Trust of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures or any extension of the maturity date of the Debentures permitted by the Indenture); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Trust granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust; (e) any invalidity of, or defect or deficiency in, the Preferred Securities; (f) any failure or omission to receive any regulatory approval or consent required in connection with the Preferred Securities (or the common equity securities issued by the Trust), including the failure to receive any approval of the Board of Governors of the Federal Reserve System required for the redemption of the Preferred Securities; 11 17 EXHIBIT 4(b)(3) (g) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (h) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 5.4. RIGHTS OF HOLDERS. (a) The Holders of a Majority in liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting of any proceeding for any remedy available to the Preferred Guarantee Trustee in respect of this Preferred Securities Guarantee or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Preferred Securities Guarantee. (b) Any Holder of Preferred Securities may institute a legal proceeding directly against the Guarantor to enforce its rights under this Preferred Securities Guarantee, without first instituting a legal proceeding against the Trust, the Preferred Guarantee Trustee or any other Person. SECTION 5.5. GUARANTEE OF PAYMENT. This Preferred Securities Guarantee creates a guarantee of payment and not of collection. SECTION 5.6. SUBROGATION. The Guarantor shall be subrogated to all (if any) rights of the Holders of Preferred Securities against the Trust in respect of any amounts paid to such Holders by the Guarantor under this Preferred Securities Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Preferred Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Preferred Securities Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 5.7. INDEPENDENT OBLIGATIONS. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Trust with respect to the Preferred Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Preferred Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (h), inclusive, of Section 5.3 hereof. 12 18 EXHIBIT 4(b)(3) ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.1. LIMITATION ON TRANSACTIONS. So long as any Preferred Securities remain outstanding, if there shall have occurred an Event of Default under this Preferred Securities Guarantee, an Event of Default under the Trust Agreement or during an Extended Interest Payment Period (as defined in the Indenture), then (a) the Guarantor shall not declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock (other than (i) dividends or distributions in common stock of the Guarantor or any declaration of a non-cash dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, and (ii) purchases of common stock of the Guarantor related to the rights under any of the Guarantor's benefit plans for its directors, officers or employees), (b) the Guarantor shall not make any payment of principal or interest on or repay, repurchase or redeem any debt securities issued by the Guarantor which rank pari passu with or junior to the Debentures and (c) the Guarantor shall not redeem, purchase or acquire less than all of the Outstanding Debentures or any of the Preferred Securities. SECTION 6.2 RANKING. This Preferred Securities Guarantee will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor, (ii) pari passu with the most senior preferred securities or preference stock now or hereafter issued by the Guarantor and with any guarantee now or hereafter entered into by the Guarantor in respect of any preferred securities or preference stock of any Affiliate of the Guarantor, and (iii) senior to the Guarantor's common stock. ARTICLE VII TERMINATION SECTION 7.1. TERMINATION. This Preferred Securities Guarantee shall terminate upon (i) full payment of the Redemption Price of all Preferred Securities, (ii) upon full payment of the amounts payable in accordance with the Trust Agreement upon liquidation of the Trust, or (iii) upon distribution of the Debentures to the Holders of the Preferred Securities. Notwithstanding the foregoing, this Preferred Securities Guarantee shall continue to be effective or shall be reinstated, as the case may be, if at any time any Holder of Preferred Securities must restore payment of any sums paid under the Preferred Securities or under this Preferred Securities Guarantee. 13 19 EXHIBIT 4(b)(3) ARTICLE VIII INDEMNIFICATION SECTION 8.1. EXCULPATION. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Preferred Securities Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Preferred Securities Guarantee or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Preferred Securities might properly be paid. SECTION 8.2. INDEMNIFICATION. The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against, or investigating, any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligation to indemnify as set forth in this Section 8.2 shall survive the termination of this Preferred Securities Guarantee. ARTICLE IX MISCELLANEOUS SECTION 9.1. SUCCESSORS AND ASSIGNS. All guarantees and agreements contained in this Preferred Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Preferred Securities then outstanding. SECTION 9.2. AMENDMENTS. Except with respect to any changes that do not materially adversely affect the rights of Holders (in which case no consent of Holders will be required), this Preferred Securities Guarantee may only be 14 20 EXHIBIT 4(b)(3) amended with the prior approval of the Holders of at least a Majority in liquidation amount of the Preferred Securities. The provisions of Article VI of the Trust Agreement with respect to meetings of Holders of the Preferred Securities apply to the giving of such approval. SECTION 9.3. NOTICES. All notices provided for in this Preferred Securities Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail, as follows: (a) If given to the Preferred Guarantee Trustee, at the Preferred Guarantee Trustee's mailing address set forth below (or such other address as the Preferred Guarantee Trustee may give notice of to the Holders of the Preferred Securities): State Street Bank and Trust Company Two International Place, 4th Floor Boston, Massachusetts 02110 Attention: Corporate Trust Department (b) If given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Preferred Securities): 1st Source Corporation 100 North Michigan Street South Bend, Indiana 46601 Attention: Chief Financial Officer (c) If given to any Holder of Preferred Securities, at the address set forth on the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 9.4. BENEFIT. This Preferred Securities Guarantee is solely for the benefit of the Holders of the Preferred Securities and, subject to Section 3.1(a), is not separately transferable from the Preferred Securities. SECTION 9.5. GOVERNING LAW. THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF INDIANA. 15 21 EXHIBIT 4(b)(3) [Remainder of page intentionally left blank.] 16 22 EXHIBIT 4(b)(3) This Preferred Securities Guarantee is executed as of the day and year first above written. 1ST SOURCE CORPORATION as Guarantor By: /s/ Christopher J. Murphy ------------------------------------------ Christopher J. Murphy President and Chief Executive Officer STATE STREET BANK AND TRUST COMPANY, as Preferred Guarantee Trustee By: /s/ Paul D. Allen ------------------------------------------ Paul D. Allen Vice President 17 EX-4.(C)(1) 5 FORM OF INDENTURE 1 EXHIBIT 4(c)(1) ============================================================================== 1ST SOURCE CORPORATION AND STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE INDENTURE FLOATING RATE SUBORDINATED DEBENTURES DUE 2027 DATED AS OF MARCH 21, 1997. ============================================================================== 2 EXHIBIT 4(c)(1) TABLE OF CONTENTS
Page ---- ARTICLE I. DEFINITIONS 1 Section 1.1. Definitions of Terms 1 ARTICLE II. ISSUE, DESCRIPTION, TERMS, CONDITIONS REGISTRATION AND EXCHANGE OF DEBENTURES 8 Section 2.1. Designation and Principal Amount 8 Section 2.2. Maturity 8 Section 2.3. Form and Payment 9 Section 2.4. [Intentionally Omitted] 10 Section 2.5. Interest 10 Section 2.6. Execution and Authentications 11 Section 2.7. Registration of Transfer and Exchange 12 Section 2.8. Temporary Debentures 13 Section 2.9. Mutilated, Destroyed, Lost or Stolen Debentures 13 Section 2.10. Cancellation 14 Section 2.11. Benefit of Indenture 14 Section 2.12. Authentication Agent 15 ARTICLE III. REDEMPTION OF DEBENTURES 15 Section 3.1. Redemption 15 Section 3.2. Special Event Redemption 15 Section 3.3. Optional Redemption by Company 16 Section 3.4. Notice of Redemption 16 Section 3.5. Payment Upon Redemption 17 Section 3.6. No Sinking Fund 17 ARTICLE IV. EXTENSION OF INTEREST PAYMENT PERIOD 18 Section 4.1. Extension of Interest Payment Period 18 Section 4.2. Notice of Extension 18 Section 4.3. Limitation on Transactions 19 ARTICLE V. PARTICULAR COVENANTS OF COMPANY 19 Section 5.1. Payment of Principal and Interest 19 Section 5.2. Maintenance of Agency 19 Section 5.3. Paying Agents 19 Section 5.4. Appointment to Fill Vacancy in Office of Trustee 20 Section 5.5. Compliance with Consolidation Provisions 20 Section 5.6. Limitation on Transactions 21 Section 5.7. Covenants as to the Trust 21 Section 5.8. Covenants as to Purchases 22 i 3 EXHIBIT 4(c)(1) ARTICLE VI. DEBENTUREHOLDERS' LISTS AND REPORTS BY COMPANY AND TRUSTEE 22 Section 6.1. Company to Furnish Trustee Names and Addresses of Debentureholders 22 Section 6.2. Preservation of Information Communications with Debentureholders 22 Section 6.3. Reports by Company 22 Section 6.4. Reports by Trustee 23 ARTICLE VII. REMEDIES OF TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF DEFAULT 23 Section 7.1. Events of Default 23 Section 7.2. Collection of Indebtedness and Suits for Enforcement by Trustee 25 Section 7.3. Application of Moneys Collected 26 Section 7.4. Limitation on Suits 26 Section 7.5. Rights and Remedies Cumulative; Delay or Omission not Waiver 27 Section 7.6. Control by Debentureholders 27 Section 7.7. Undertaking to Pay Costs 28 ARTICLE VIII. FORM OF DEBENTURE AND ORIGINAL ISSUE 28 Section 8.1. Form of Debenture 28 Section 8.2. Original Issue of Debentures 28 ARTICLE IX. CONCERNING TRUSTEE 29 Section 9.1. Certain Duties and Responsibilities of Trustee 29 Section 9.2. Notice of Defaults 30 Section 9.3. Certain Rights of Trustee 30 Section 9.4. Trustee Not Responsible for Recitals, etc. 31 Section 9.5. May Hold Debentures 31 Section 9.6. Moneys Held in Trust 32 Section 9.7. Compensation and Reimbursement 32 Section 9.8. Reliance on Officers' Certificate 32 Section 9.9. Disqualification: Conflicting Interests 32 Section 9.10. Corporate Trustee Required; Eligibility 33 Section 9.11. Resignation and Removal; Appointment of Successor 33 Section 9.12. Acceptance of Appointment by Successor 34 Section 9.13. Merger, Conversion, Consolidation or Succession to Business 35 Section 9.14. Preferential Collection of Claims Against the Company 35 ARTICLE X. CONCERNING DEBENTUREHOLDERS 35 Section 10.1. Evidence of Action by Holders 35 Section 10.2. Proof of Execution by Debentureholders 36 Section 10.3. Who May be Deemed Owners 36 Section 10.4. Certain Debentures Owned by Company Disregarded 36 Section 10.5. Actions Binding on Future Debentureholders 36 ARTICLE XI. SUPPLEMENTAL INDENTURES 37 Section 11.1. Supplemental Indentures Without the Consent of Debentureholders 37 ii 4 EXHIBIT 4(c)(1) Section 11.2. Supplemental Indentures with Consent of Debentureholders 38 Section 11.3. Effect of Supplemental Indentures 38 Section 11.4. Debentures Affected by Supplemental Indentures 38 Section 11.5. Execution of Supplemental Indentures 38 ARTICLE XII. SUCCESSOR CORPORATION 39 Section 12.1. Company May Consolidate, etc. 39 Section 12.2. Successor Corporation Substituted 39 Section 12.3. Evidence of Consolidation, etc. to Trustee 40 ARTICLE XIII. SATISFACTION AND DISCHARGE 40 Section 13.1. Satisfaction and Discharge of Indenture 40 Section 13.2. Discharge of Obligations 41 Section 13.3. Deposited Moneys to be Held in Trust 41 Section 13.4. Payment of Monies Held by Paying Agents 41 Section 13.5. Repayment to Company 41 ARTICLE XIV. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS 42 Section 14.1. No Recourse 42 ARTICLE XV. MISCELLANEOUS PROVISIONS 42 Section 15.1. Effect on Successors and Assigns 42 Section 15.2. Actions by Successor 42 Section 15.3. Surrender of Company Powers 42 Section 15.4. Notices 43 Section 15.5. Governing Law 43 Section 15.6. Treatment of Debentures as Debt 43 Section 15.7. Compliance Certificates and Opinions 43 Section 15.8. Payments on Business Days 43 Section 15.9. Conflict with Trust Indenture Act 44 Section 15.10. Counterparts 44 Section 15.11. Separability 44 Section 15.12. Assignment 44 Section 15.13. Acknowledgment of Rights 44 ARTICLE XVI. SUBORDINATION OF DEBENTURES 44 Section 16.1. Agreement to Subordinate 45 Section 16.2. Default on Senior Debt, Subordinated Debt or Additional Senior Obligations 45 Section 16.3. Liquidation; Dissolution; Bankruptcy 45 Section 16.4. Subrogation 46 Section 16.5. Trustee to Effectuate Subordination 47 Section 16.6. Notice by Company 47 Section 16.7. Rights of Trustee; Holders of Senior Indebtedness 48 Section 16.8. Subordination may not be Impaired 48
iii 5 EXHIBIT 4(c)(1) CROSS REFERENCE TABLE
SECTION OF TRUST INDENTURE ACT OF SECTION OF 1939, AS AMENDED INDENTURE ---------------- ---------- 310(a) 9.10 310(b) 9.9, 9.11 310(c) Not Applicable 311(a) 9.14 311(b) 9.14 311(c) Not Applicable 312(a) 6.1, 6.2(a) 312(b) 6.2(c) 312(c) 6.2(c) 313(a) 6.4(a) 313(b) 6.4(b) 313(c) 6.4(a), 6.4(b) 313(d) 6.4(c) 314(a) 6.3(a) 314(b) Not Applicable 314(c) 15.7 314(d) Not Applicable 314(e) 15.7 314(f) Not Applicable 315(a) 9.1(a), 9.3 315(b) 9.2 315(c) 9.1(a) 315(d) 9.1(b) 315(e) 7.7 316(a) 1.1, 7.6 316(b) 7.4(b) 316(c) 10.1(b) 317(a) 7.2 317(b) 5.3 318(a) 15.9 Note: This Cross-Reference Table does not constitute part of this Indenture and shall not affect the interpretation of any of its terms or provisions.
iv 6 EXHIBIT 4(c)(1) INDENTURE INDENTURE, dated as of March 21, 1997, between 1ST SOURCE CORPORATION, an Indiana corporation (the "Company"), and STATE STREET BANK AND TRUST COMPANY, a trust company duly organized and existing under the laws of the Commonwealth of Massachusetts, as trustee (the "Trustee"); RECITALS WHEREAS, for its lawful corporate purposes, the Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of securities to be known as its Floating Rate Subordinated Debentures due 2027 (hereinafter referred to as the "Debentures"), the form and substance of such Debentures and the terms, provisions and conditions thereof to be set forth as provided in this Indenture; WHEREAS, 1st Source Capital Trust II, a Delaware statutory business trust (the "Trust"), has offered to the public up to $17,250,000 aggregate liquidation amount of its Preferred Securities (as defined herein) and proposes to invest the proceeds from such offering, together with the proceeds of the issuance and sale by the Trust to the Company of up to $533,525 aggregate liquidation amount of its Common Securities (as defined herein), in up to $17,783,525 aggregate principal amount of the Debentures; and WHEREAS, the Company has requested that the Trustee execute and deliver this Indenture; and WHEREAS, all requirements necessary to make this Indenture a valid instrument in accordance with its terms, and to make the Debentures, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company, have been performed, and the execution and delivery of this Indenture have been duly authorized in all respects; and WHEREAS, to provide the terms and conditions upon which the Debentures are to be authenticated, issued and delivered, the Company has duly authorized the execution of this Indenture; and WHEREAS, all things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, in consideration of the premises and the purchase of the Debentures by the holders thereof, it is mutually covenanted and agreed as follows for the equal and ratable benefit of the holders of the Debentures: ARTICLE I. DEFINITIONS SECTION 1.1. DEFINITIONS OF TERMS. The terms defined in this Section 1.1 (except as in this Indenture otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.1 and shall include the plural as well as the singular. All other terms used in this Indenture that are defined in the Trust Indenture Act, or that are 7 EXHIBIT 4(c)(1) by reference in the Trust Indenture Act defined in the Securities Act (except as herein otherwise expressly provided or unless the context otherwise requires), shall have the meanings assigned to such terms in the Trust Indenture Act and in the Securities Act as in force at the date of the execution of this instrument. All accounting terms used herein and not expressly defined shall have the meanings assigned to such terms in accordance with Generally Accepted Accounting Principles. "3-Month Treasury" shall have the meaning set forth in Section 2.5. "Accelerated Maturity Date" means if the Company elects to accelerate the Maturity Date in accordance with Section 2.2(c), the date selected by the Company which is prior to the Scheduled Maturity Date, but is after March 31, 2002. "Additional Interest" shall have the meaning set forth in Section 2.5. "Additional Senior Obligations" means all indebtedness of the Company whether incurred on or prior to the date of this Indenture or thereafter incurred, for claims in respect of derivative products such as interest and foreign exchange rate contracts, commodity contracts and similar arrangements; provided, however, that Additional Senior Obligations does not include claims in respect of Senior Debt or Subordinated Debt or obligations which, by their terms, are expressly stated to be not superior in right of payment to the Debentures or to rank pari passu in right of payment with the Debentures. For purposes of this definition, "claim" shall have the meaning assigned thereto in Section 101(4) of the United States Bankruptcy Code of 1978, as amended. "Administrative Trustees" shall have the meaning set forth in the Trust Agreement. "Affiliate" means, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities or other ownership interests of the specified Person; (b) any Person 10% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person; (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person; (d) a partnership in which the specified Person is a general partner; (e) any officer or director of the specified Person; and (f) if the specified Person is an individual, any entity of which the specified Person is an officer, director or general partner. "Authenticating Agent" means an authenticating agent with respect to the Debentures appointed by the Trustee pursuant to Section 2.12. "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company or any duly authorized committee of such Board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the 2 8 EXHIBIT 4(c)(1) date of such certification. "Business Day" means, with respect to the Debentures, any day other than a Saturday or a Sunday or a day on which federal or state banking institutions in the Borough of Manhattan, The City of New York, are authorized or required by law, executive order or regulation to close, or a day on which the Corporate Trust Office of the Trustee or the Property Trustee is closed for business. "Capital Treatment Event" means the receipt by the Trust of an Opinion of Counsel, rendered by a law firm having a recognized banking law practice, to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such proposed change, pronouncement or decision is announced on or after the date of issuance of the Preferred Securities under the Trust Agreement, there is more than an insubstantial risk of impairment of the Company's ability to treat the aggregate liquidation amount of the Preferred Securities (or any substantial portion thereof) as Tier 1 capital (or the then equivalent thereof) for purposes of the capital adequacy guidelines of the Federal Reserve, as then in effect and applicable to the Company. "Certificate" means a certificate signed by the principal executive officer, the principal financial officer, the principal accounting officer, the treasurer or any vice president of the Company. The Certificate need not comply with the provisions of Section 15.7. "Change in 1940 Act Law" shall have the meaning set forth in the definition of "Investment Company Event." "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Securities" means undivided beneficial interests in the assets of the Trust which rank pari passu with the Preferred Securities; provided, however, that upon the occurrence of an Event of Default, the rights of holders of Common Securities to payment in respect of (i) distributions, and (ii) payments upon liquidation, redemption and otherwise, are subordinated to the rights of holders of Preferred Securities. "Company" means 1st Source Corporation, a corporation duly organized and existing under the laws of the State of Indiana, and, subject to the provisions of Article XII, shall also include its successors and assigns. "Compounded Interest" shall have the meaning set forth in Section 4.1. "Corporate Trust Office" means the office of the Trustee at which, at any particular time, its corporate trust business shall be principally administered, which office at the date hereof is located at Two International Place, 4th Floor, Boston Massachusetts 02110, Attention: Corporate Trust Department. 3 9 EXHIBIT 4(c)(1) "Coupon Rate" shall have the meaning set forth in Section 2.5. "Custodian" means any receiver, trustee, assignee, liquidator, or similar official under any Bankruptcy Law. "Debentures" shall have the meaning set forth in the Recitals hereto. "Debentureholder," "holder of Debentures," "registered holder," or other similar term, means the Person or Persons in whose name or names a particular Debenture shall be registered on the books of the Company or the Trustee kept for that purpose in accordance with the terms of this Indenture. "Debenture Register" shall have the meaning set forth in Section 2.7(b). "Debenture Registrar" shall have the meaning set forth in Section 2.7(b). "Debt" means with respect to any Person, whether recourse is to all or a portion of the assets of such Person and whether or not contingent, (i) every obligation of such Person for money borrowed; (ii) every obligation of such Person evidenced by bonds, debentures, notes or other similar instruments, including obligations incurred in connection with the acquisition of property, assets or businesses; (iii) every reimbursement obligation of such Person with respect to letters of credit, bankers' acceptances or similar facilities issued for the account of such Person; (iv) every obligation of such Person issued or assumed as the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business); (v) every capital lease obligation of such Person; and (vi) and every obligation of the type referred to in clauses (i) through (v) of another Person and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable, directly or indirectly, as obligor or otherwise. "Default" means any event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default. "Deferred Interest" shall have the meaning set forth in Section 4.1. "Dissolution Event" means that as a result of the occurrence and continuation of a Special Event, the Trust is to be dissolved in accordance with the Trust Agreement and the Debentures held by the Property Trustee are to be distributed to the holders of the Trust Securities issued by the Trust pro rata in accordance with the Trust Agreement. "Distribution" shall have the meaning set forth in the Trust Agreement. "Distribution Period" shall have the meaning set forth in Section 2.5. "Event of Default" means, with respect to the Debentures, any event specified in Section 7.1, which has continued for the period of time, if any, and after the giving of the notice, if any, therein designated. "Exchange Act," means the Securities Exchange Act of 1934, as amended, as in effect at the date 4 10 EXHIBIT 4(c)(1) of execution of this instrument. "Extended Interest Payment Period" shall have the meaning set forth in Section 4.1. "Extended Maturity Date" means if the Company elects to extend the Maturity Date in accordance with Section 2.2(b), the date selected by the Company which is after the Scheduled Maturity Date but before March 31, 2046. "Federal Reserve" means the Board of Governors of the Federal Reserve System. "Generally Accepted Accounting Principles" means such accounting principles as are generally accepted at the time of any computation required hereunder. "Governmental Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged; or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America that, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such Governmental Obligation or a specific payment of principal of or interest on any such Governmental Obligation held by such custodian for the account of the holder of such depositary receipt; provided, however, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the Governmental Obligation or the specific payment of principal of or interest on the Governmental Obligation evidenced by such depositary receipt. "Herein," "hereof," and "hereunder," and other words of similar import, refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into in accordance with the terms hereof. "Interest Payment Date," shall have the meaning set forth in Section 2.5. "Investment Company Act" means the Investment Company Act of 1940, as amended, as in effect at the date of execution of this instrument. "Investment Company Event" means the receipt by the Trust of an Opinion of Counsel, rendered by a law firm having a recognized tax and securities law practice, to the effect that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), the Trust is or shall be considered an "investment company" that is required to be registered under the Investment Company Act, which Change in 1940 Act Law becomes effective on or after the date of original issuance of the Preferred Securities under the Trust Agreement. 5 11 EXHIBIT 4(c)(1) "Maturity Date" means the date on which the Debentures mature and on which the principal shall be due and payable together with all accrued and unpaid interest thereon including Compounded Interest and Additional Interest, if any. "Ministerial Action" shall have the meaning set forth in Section 3.2. "Officers' Certificate" means a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Controller or an Assistant Controller or the Secretary or an Assistant Secretary of the Company that is delivered to the Trustee in accordance with the terms hereof. Each such certificate shall include the statements provided for in Section 15.7, if and to the extent required by the provisions thereof. "Opinion of Counsel" means an opinion in writing of legal counsel, who may be an employee of or counsel for the Company, that is delivered to the Trustee in accordance with the terms hereof. Each such opinion shall include the statements provided for in Section 15.7, if and to the extent required by the provisions thereof. "Outstanding," when used with reference to the Debentures, means, subject to the provisions of Section 10.4, as of any particular time, all Debentures theretofore authenticated and delivered by the Trustee under this Indenture, except (a) Debentures theretofore canceled by the Trustee or any paying agent, or delivered to the Trustee or any paying agent for cancellation or that have previously been canceled; (b) Debentures or portions thereof for the payment or redemption of which moneys or Governmental Obligations in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall act as its own paying agent); provided, however, that if such Debentures or portions of such Debentures are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as in Article III provided, or provision satisfactory to the Trustee shall have been made for giving such notice; and (c) Debentures in lieu of or in substitution for which other Debentures shall have been authenticated and delivered pursuant to the terms of Section 2.7. "Paying Agent" means any paying agent or co-paying agent appointed pursuant to Section 5.3. "Person" means any individual, corporation, partnership, joint-venture, joint-stock company, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Debenture" means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such particular Debenture; and, for the purposes of this definition, any Debenture authenticated and delivered under Section 2.9 in lieu of a lost, destroyed or stolen Debenture shall be deemed to evidence the same debt as the lost, destroyed or stolen Debenture. "Preferred Securities" means undivided beneficial interests in the assets of the Trust which rank pari passu with Common Securities issued by the Trust; provided, however, that upon the occurrence of an Event of Default, the rights of holders of Common Securities to payment in respect of (i) distributions, and (ii) payments upon liquidation, redemption and otherwise, are subordinated to the rights of holders of Preferred Securities. 6 12 EXHIBIT 4(c)(1) "Preferred Securities Guarantee" means any guarantee that the Company may enter into with the Trustee or other Persons that operate directly or indirectly for the benefit of holders of Preferred Securities. "Property Trustee" has the meaning set forth in the Trust Agreement. "Responsible Officer" when used with respect to the Trustee means the Chairman of the Board of Directors, the President, any Vice President, the Secretary, the Treasurer, any trust officer, any corporate trust officer or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of his or her knowledge of and familiarity with the particular subject. "Scheduled Maturity Date" means March 31, 2027. "Securities Act," means the Securities Act of 1933, as amended, as in effect at the date of execution of this instrument. "Senior Debt" means the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not such claim for post-petition interest is allowed in such proceeding), on Debt, whether incurred on or prior to the date of this Indenture or thereafter incurred, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are not superior in right of payment to the Debentures or to other Debt which is pari passu with, or subordinated to, the Debentures; provided, however, that Senior Debt shall not be deemed to include (i) any Debt of the Company which when incurred and without respect to any election under section 1111(b) of the United States Bankruptcy Code of 1978, as amended, was without recourse to the Company; (ii) any Debt of the Company to any of its subsidiaries; (iii) Debt to any employee of the Company; (iv) Debt which by its terms is subordinated to trade accounts payable or accrued liabilities arising in the ordinary course of business to the extent that payments made to the holders of such Debt by the holders of the Debentures as a result of the subordination provisions of this Indenture would be greater than they otherwise would have been as a result of any obligation of such holders to pay amounts over to the obligees on such trade accounts payable or accrued liabilities arising in the ordinary course of business as a result of subordination provisions to which such Debt is subject; and (v) Debt which constitutes Subordinated Debt. "Senior Indebtedness" shall have the meaning set forth in Section 16.1. "Special Event" means a Tax Event, a Capital Treatment Event or an Investment Company Event. "Subordinated Debt" means the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not such claim for post-petition interest is allowed in such proceeding), on Debt, whether incurred on or prior to the date of this Indenture or thereafter incurred, which is by its terms expressly provided to be junior and subordinate to other Debt of the Company (other than the Debentures). "Subsidiary" means, with respect to any Person, (i) any corporation at least a majority of whose 7 13 EXHIBIT 4(c)(1) outstanding Voting Stock shall at the time be owned, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries; (ii) any general partnership, joint venture, trust or similar entity, at least a majority of whose outstanding partnership or similar interests shall at the time be owned by such Person, or by one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; and (iii) any limited partnership of which such Person or any of its Subsidiaries is a general partner. "Tax Event" means the receipt by the Trust of an Opinion of Counsel, rendered by a law firm having a recognized tax and securities practice, to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after the date of issuance of the Preferred Securities under the Trust Agreement, there is more than an insubstantial risk that (i) the Trust is, or shall be within 90 days after the date of such Opinion of Counsel, subject to United States federal income tax with respect to income received or accrued on the Debentures; (ii) interest payable by the Company on the Debentures is not, or within 90 days after the date of such Opinion of Counsel, shall not be, deductible by the Company, in whole or in part, for United States federal income tax purposes; or (iii) the Trust is, or shall be within 90 days after the date of such Opinion of Counsel, subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges. The Trust or the Company shall request and receive such Opinion of Counsel with regard to such matters within a reasonable period of time after the Trust or the Company shall have become aware of any of the events described in clauses (i) through (iii) above. "Trust" means 1st Source Capital Trust II, a Delaware statutory business trust. "Trust Agreement" means the Amended and Restated Trust Agreement, dated March 21, 1997, of the Trust. "Trustee" means State Street Bank and Trust Company and, subject to the provisions of Article IX, shall also include its successors and assigns, and, if at any time there is more than one Person acting in such capacity hereunder, "Trustee" shall mean each such Person. "Trust Indenture Act," means the Trust Indenture Act of 1939, as amended, subject to the provisions of Sections 11.1, 11.2, and 12.1, as in effect at the date of execution of this instrument. "Trust Securities" means the Common Securities and Preferred Securities, collectively. "Voting Stock," as applied to stock of any Person, means shares, interests, participations or other equivalents in the equity interest (however designated) in such Person having ordinary voting power for the election of a majority of the directors (or the equivalent) of such Person, other than shares, interests, participations or other equivalents having such power only by reason of the occurrence of a contingency. 8 14 EXHIBIT 4(c)(1) ARTICLE II. ISSUE, DESCRIPTION, TERMS, CONDITIONS REGISTRATION AND EXCHANGE OF DEBENTURES SECTION 2.1. DESIGNATION AND PRINCIPAL AMOUNT. There is hereby authorized Debentures designated the "Floating Rate Subordinated Debentures due 2027," limited in aggregate principal amount no more than $17,783,525, which amount shall be as set forth in any written order of the Company for the authentication and delivery of Debentures pursuant to Section 2.6. SECTION 2.2. MATURITY. (a) The Maturity Date shall be either: (i) the Scheduled Maturity Date; or (ii) if the Company elects to extend the Maturity Date beyond the Scheduled Maturity Date in accordance with Section 2.2(b), the Extended Maturity Date; or (iii) if the Company elects to accelerate the Maturity Date to be a date prior to the Scheduled Maturity Date in accordance with Section 2.2(c), the Accelerated Maturity Date. (b) the Company may at any time before the day which is 90 days before the Scheduled Maturity Date, elect to extend the Maturity Date to the Extended Maturity Date, provided that the Company has received the prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve and further provided that the following conditions in this Section 2.2(b) are satisfied both at the date the Company gives notice in accordance with Section 2.2(d) of its election to extend the Maturity Date and at the Scheduled Maturity Date: (i) the Company is not in bankruptcy, otherwise insolvent or in liquidation; (ii) the Company is not in default in the payment of interest or principal on the Debentures; and (iii) the Trust is not in arrears on payments of Distributions on the Trust Securities issued by it and no deferred Distributions are accumulated. (c) the Company may at any time before the day which is 90 days before the Scheduled Maturity Date and after March 31, 2002, elect to shorten the Maturity Date only once to the Accelerated Maturity Date provided that the Company has received the prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. (d) if the Company elects to extend the Maturity Date in accordance with Section 2.2(b), the 9 15 EXHIBIT 4(c)(1) Company shall give notice to the registered holders of the Debentures, the Property Trustee and the Trust of the extension of the Maturity Date and the Extended Maturity Date at least 90 days and no more than 180 days before the Scheduled Maturity Date. (e) if the Company elects to accelerate the Maturity Date in accordance with Section 2.2(c), the Company shall give notice to the registered holders of the Debentures, the Property Trustee and the Trust of the acceleration of the Maturity Date and the Accelerated Maturity Date at least 90 days and no more than 180 days before the Accelerated Maturity Date. SECTION 2.3. FORM AND PAYMENT. The Debentures shall be issued in fully registered certificated form without interest coupons. Principal and interest on the Debentures issued in certificated form shall be payable, the transfer of such Debentures shall be registrable and such Debentures shall be exchangeable for Debentures bearing identical terms and provisions at the office or agency of the Trustee; provided, however, that payment of interest may be made at the option of the Company by check mailed to the holder at such address as shall appear in the Debenture Register or by wire transfer to an account maintained by the holder as specified in the Debenture Register, provided that the holder provides proper transfer instructions by the regular record date. Notwithstanding the foregoing, so long as the holder of any Debentures is the Property Trustee, the payment of the principal of and interest (including Compounded Interest and Additional Interest, if any) on such Debentures held by the Property Trustee shall be made at such place and to such account as may be designated by the Property Trustee. SECTION 2.4. [INTENTIONALLY OMITTED]. SECTION 2.5. INTEREST. (a) Each Debenture shall bear interest for the period beginning on (and including) the date of original issuance and ending on (but excluding) March 31, 1997 at a rate per annum of 7.50%, and shall bear interest for each successive period beginning on (and including) March 31, 1997, and each succeeding Interest Payment Date, and ending on (but excluding) the next succeeding Interest Payment Date (each, a "Distribution Period") at a rate per annum determined by reference to the 3-Month Treasury, determined as described in Section 2.5(d), plus 2.25% (the "Coupon Rate") applied to the principal amount thereof, until the principal thereof becomes due and payable, and on any overdue principal and to the extent that payment of such interest is enforceable under applicable law (without duplication) on any overdue installment of interest at the Coupon Rate compounded quarterly. Interest shall be payable (subject to the provisions of Article IV) quarterly in arrears on March 31, June 30, September 30 and December 31 of each year (each, an "Interest Payment Date"), with the first installment of interest to be paid on June 30, 1997, to the Person in whose name such Debenture or any Predecessor Debenture is registered, at the close of business on the regular record date for such interest installment, which shall be the fifteenth day of the last month of the calendar quarter. (b) The amount of interest payable for any period shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of interest payable for any period shorter than a full quarterly period for which interest is computed shall be computed on the basis of the number of days elapsed in a 360-day 10 16 EXHIBIT 4(c)(1) year of twelve 30-day months. In the event that any date on which interest is payable on the Debentures is not a Business Day, then payment of interest payable on such date shall be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay) with the same force and effect as if made on the date such payment was originally payable. The amount of interest payable will be calculated by applying the Coupon Rate to the principal amount outstanding at the commencement of the Distribution Period and multiplying each such amount by the actual number of days (based upon a 30-day month) in the Distribution Period concerned divided by 360. All percentages resulting from any calculations referred to in this Indenture will be rounded, if necessary, to the nearest multiple of 1/100 of 1%. (c) If, at any time while the Property Trustee is the holder of any Debentures, the Trust or the Property Trustee is required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in any case, the Company shall pay as additional interest (the "Additional Interest") on the Debentures held by the Property Trustee, such additional amounts as shall be required so that the net amounts received and retained by the Trust and the Property Trustee after paying such taxes, duties, assessments or other governmental charges shall be equal to the amounts the Trust and the Property Trustee would have received had no such taxes, duties, assessments or other government charges been imposed. (d) "3-Month Treasury" means the yield on United States of America Treasury constant maturities, adjusted to a constant maturity of three (3) months, reported by the Federal Reserve. 3-Month Treasury, with respect to any Distribution Period, shall be determined by the Trustee as follows: (i) On the second Business Day preceding the commencement of such Distribution Period (each, a "Determination Date"), 3-Month Treasury shall be the current yield for United States of America Treasury constant maturities, adjusted to a constant maturity of three (3) months, which appears on the applicable Federal Reserve Statistical Release Series H.15 (519) which includes data for such Determination Date, or as then currently furnished or made available by the Federal Reserve if such Series is no longer published. (ii) If, with respect to any Determination Date, the Trustee is required but unable to determine 3-Month Treasury in the manner provided in Section 2.5(d)(i), 3-Month Treasury for such Distribution Period shall be 3-Month Treasury as determined on the previous Determination Date. (iii) The Coupon Rate for any Distribution Period shall at no time be higher than the maximum rate then permitted by Indiana law as the same may be modified by United States law. (e) The Trustee shall notify the Company, the Property Trustee and any securities exchange or interdealer quotation system on which the Preferred Securities are listed, of the Coupon Rate and the Determination Date for each Distribution Period, in each case as soon as practicable after the determination thereof but in no event later than the seventh Business Day of the relevant Distribution Period. Failure to notify the Company, the Property Trustee or any securities exchange or interdealer quotation system, or any defect in said notice, shall not affect the obligation of the Company to make payment on the Debentures at the applicable Coupon Rate. Any error in the calculation of the Coupon Rate by the Property Trustee may be corrected at any time by notice delivered as above provided. Upon the request of a holder of a Preferred 11 17 EXHIBIT 4(c)(1) Security, the Trustee shall provide the Coupon Rate then in effect and, if determined, the Coupon Rate for the next Distribution Period. (f) Subject to the corrective rights set forth above, all certificates, communications, opinions, determinations, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions relating to the payment and calculation of interest on the Debentures and Distributions on the Preferred Securities by the Trustee or the Property Trustee will (in the absence of willful default, bad faith and manifest error) be final, conclusive and binding on the Trust, the Company, and all of the holders of the Debentures and the Preferred Securities, and no liability shall (in the absence of willful default, bad faith or manifest error) attach to the Trustee or the Property Trustee in connection with the exercise or non-exercise by either of them or their respective powers, duties and discretion. SECTION 2.6. EXECUTION AND AUTHENTICATIONS. (a) The Debentures shall be signed on behalf of the Company by its Chief Executive Officer, President or one of its Vice Presidents, under its corporate seal attested by its Secretary or one of its Assistant Secretaries. Signatures may be in the form of a manual or facsimile signature. The Company may use the facsimile signature of any Person who shall have been a Chief Executive Officer, President or Vice President thereof, or of any Person who shall have been a Secretary or Assistant Secretary thereof, notwithstanding the fact that at the time the Debentures shall be authenticated and delivered or disposed of such Person shall have ceased to be the Chief Executive Officer, President or a Vice President, or the Secretary or an Assistant Secretary of the Company. The seal of the Company may be in the form of a facsimile of such seal and may be impressed, affixed, imprinted or otherwise reproduced on the Debentures. The Debentures may contain such notations, legends or endorsements required by law, stock exchange rule or usage. Each Debenture shall be dated the date of its authentication by the Trustee. (b) A Debenture shall not be valid until authenticated manually by an authorized signatory of the Trustee, or by an Authenticating Agent. Such signature shall be conclusive evidence that the Debenture so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. (c) At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Debentures executed by the Company to the Trustee for authentication, together with a written order of the Company for the authentication and delivery of such Debentures signed by its Chief Executive Officer, President or any Vice President and its Treasurer or any Assistant Treasurer, and the Trustee in accordance with such written order shall authenticate and deliver such Debentures. (d) In authenticating such Debentures and accepting the additional responsibilities under this Indenture in relation to such Debentures, the Trustee shall be entitled to receive, and (subject to Section 9.1) shall be fully protected in relying upon, an Opinion of Counsel stating that the form and terms thereof have been established in conformity with the provisions of this Indenture. (e) The Trustee shall not be required to authenticate such Debentures if the issue of such Debentures pursuant to this Indenture shall affect the Trustee's own rights, duties or immunities under the Debentures and this Indenture or otherwise in a manner that is not reasonably acceptable to the Trustee. 12 18 EXHIBIT 4(c)(1) SECTION 2.7. REGISTRATION OF TRANSFER AND EXCHANGE. (a) Debentures may be exchanged upon presentation thereof at the office or agency of the Company designated for such purpose, or at the office of the Debenture Registrar, for other Debentures and for a like aggregate principal amount, upon payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, all as provided in this Section 2.7. In respect of any Debentures so surrendered for exchange, the Company shall execute, the Trustee shall authenticate and such office or agency shall deliver in exchange therefor the Debenture or Debentures that the Debentureholder making the exchange shall be entitled to receive, bearing numbers not contemporaneously outstanding. (b) The Company shall keep, or cause to be kept, at its office or agency designated for such purpose, or at the office of the Debenture Registrar, or such other location designated by the Company a register or registers (herein referred to as the "Debenture Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall register the Debentures and the transfers of Debentures as in this Article II provided and which at all reasonable times shall be open for inspection by the Trustee. The registrar for the purpose of registering Debentures and transfer of Debentures as herein provided shall initially be the Trustee and thereafter as may be appointed by the Company as authorized by Board Resolution (the "Debenture Registrar"). Upon surrender for transfer of any Debenture at the office or agency of the Company designated for such purpose, the Company shall execute, the Trustee shall authenticate and such office or agency shall deliver in the name of the transferee or transferees a new Debenture or Debentures for a like aggregate principal amount. All Debentures presented or surrendered for exchange or registration of transfer, as provided in this Section 2.7, shall be accompanied (if so required by the Company or the Debenture Registrar) by a written instrument or instruments of transfer, in form satisfactory to the Company or the Debenture Registrar, duly executed by the registered holder or by such holder's duly authorized attorney in writing. (c) No service charge shall be made for any exchange or registration of transfer of Debentures, or issue of new Debentures in case of partial redemption, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, other than exchanges pursuant to Section 2.8, Section 3.5(b) and Section 11.4 not involving any transfer. (d) The Company shall not be required (i) to issue, exchange or register the transfer of any Debentures during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of less than all the Outstanding Debentures and ending at the close of business on the day of such mailing; nor (ii) to register the transfer of or exchange any Debentures or portions thereof called for redemption. SECTION 2.8. TEMPORARY DEBENTURES. Pending the preparation of definitive Debentures, the Company may execute, and the Trustee shall authenticate and deliver, temporary Debentures (printed, lithographed, or typewritten). Such temporary Debentures shall be substantially in the form of the definitive Debentures in lieu of which they are issued, but with such omissions, insertions and variations as may be appropriate for temporary Debentures, all as may be determined by the Company. Every temporary Debenture shall be executed by the Company and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like 13 19 EXHIBIT 4(c)(1) effect, as the definitive Debentures. Without unnecessary delay the Company shall execute and shall furnish definitive Debentures and thereupon any or all temporary Debentures may be surrendered in exchange therefor (without charge to the holders), at the office or agency of the Company designated for the purpose, and the Trustee shall authenticate and such office or agency shall deliver in exchange for such temporary Debentures an equal aggregate principal amount of definitive Debentures, unless the Company advises the Trustee to the effect that definitive Debentures need not be executed and furnished until further notice from the Company. Until so exchanged, the temporary Debentures shall be entitled to the same benefits under this Indenture as definitive Debentures authenticated and delivered hereunder. SECTION 2.9. MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES. (a) In case any temporary or definitive Debenture shall become mutilated or be destroyed, lost or stolen, the Company (subject to the next succeeding sentence) shall execute, and upon the Company's request the Trustee (subject as aforesaid) shall authenticate and deliver, a new Debenture bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Debenture, or in lieu of and in substitution for the Debenture so destroyed, lost or stolen. In every case the applicant for a substituted Debenture shall furnish to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and the Trustee evidence to their satisfaction of the destruction, loss or theft of the applicant's Debenture and of the ownership thereof. The Trustee may authenticate any such substituted Debenture and deliver the same upon the written request or authorization of the Chairman, President or any Vice-President and the Treasurer or any Assistant Treasurer of the Company. Upon the issuance of any substituted Debenture, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. In case any Debenture that has matured or is about to mature shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Debenture, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated Debenture) if the applicant for such payment shall furnish to the Company and the Trustee such security or indemnity as they may require to save them harmless, and, in case of destruction, loss or theft, evidence to the satisfaction of the Company and the Trustee of the destruction, loss or theft of such Debenture and of the ownership thereof. (b) Every replacement Debenture issued pursuant to the provisions of this Section 2.9 shall constitute an additional contractual obligation of the Company whether or not the mutilated, destroyed, lost or stolen Debenture shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debentures duly issued hereunder. All Debentures shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures, and shall preclude (to the extent lawful) any and all other rights or remedies, notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. SECTION 2.10. CANCELLATION. All Debentures surrendered for the purpose of payment, redemption, exchange or registration of 14 20 EXHIBIT 4(c)(1) transfer shall, if surrendered to the Company or any paying agent, be delivered to the Trustee for cancellation, or, if surrendered to the Trustee, shall be canceled by it, and no Debentures shall be issued in lieu thereof except as expressly required or permitted by any of the provisions of this Indenture. On request of the Company at the time of such surrender, the Trustee shall deliver to the Company canceled Debentures held by the Trustee. In the absence of such request the Trustee may dispose of canceled Debentures in accordance with its standard procedures and deliver a certificate of disposition to the Company. If the Company shall otherwise acquire any of the Debentures, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Debentures unless and until the same are delivered to the Trustee for cancellation. SECTION 2.11. BENEFIT OF INDENTURE. Nothing in this Indenture or in the Debentures, express or implied, shall give or be construed to give to any Person, other than the parties hereto and the holders of the Debentures (and, with respect to the provisions of Article XVI, the holders of Senior Indebtedness) any legal or equitable right, remedy or claim under or in respect of this Indenture, or under any covenant, condition or provision herein contained; all such covenants, conditions and provisions being for the sole benefit of the parties hereto and of the holders of the Debentures (and, with respect to the provisions of Article XVI, the holders of Senior Indebtedness). SECTION 2.12. AUTHENTICATION AGENT. (a) So long as any of the Debentures remain Outstanding there may be an Authenticating Agent for any or all such Debentures, which the Trustee shall have the right to appoint. Said Authenticating Agent shall be authorized to act on behalf of the Trustee to authenticate Debentures issued upon exchange, transfer or partial redemption thereof, and Debentures so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. All references in this Indenture to the authentication of Debentures by the Trustee shall be deemed to include authentication by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall be a corporation that has a combined capital and surplus, as most recently reported or determined by it, sufficient under the laws of any jurisdiction under which it is organized or in which it is doing business to conduct a trust business, and that is otherwise authorized under such laws to conduct such business and is subject to supervision or examination by federal or state authorities. If at any time any Authenticating Agent shall cease to be eligible in accordance with these provisions, it shall resign immediately. (b) Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time (and upon request by the Company shall) terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon resignation, termination or cessation of eligibility of any Authenticating Agent, the Trustee may appoint an eligible successor Authenticating Agent acceptable to the Company. Any successor Authenticating Agent, upon acceptance of its appointment hereunder, shall become vested with all the rights, powers and duties of its predecessor hereunder as if originally named as an Authenticating Agent pursuant hereto. 15 21 EXHIBIT 4(c)(1) ARTICLE III. REDEMPTION OF DEBENTURES SECTION 3.1. REDEMPTION. Subject to the Company having received prior approval of the Federal Reserve, if then required under the applicable capital guidelines or policies of the Federal Reserve, the Company may redeem the Debentures issued hereunder on and after the dates set forth in and in accordance with the terms of this Article III. SECTION 3.2. SPECIAL EVENT REDEMPTION. Subject to the Company having received the prior approval of the Federal Reserve, if then required under the applicable capital guidelines or policies of the Federal Reserve, if a Special Event has occurred and is continuing, then, notwithstanding Section 3.3, the Company shall have the right upon not less than 30 days nor more than 60 days notice to the holders of the Debentures to redeem the Debentures, in whole but not in part, for cash within 180 days following the occurrence of such Special Event (the "180-Day Period") at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest thereon to the date of such redemption (the "Redemption Price"), provided that if at the time there is available to the Company the opportunity to eliminate, within the 180-Day Period, a Tax Event by taking some ministerial action (a "Ministerial Action"), such as filing a form or making an election, or pursuing some other similar reasonable measure which has no adverse effect on the Company, the Trust or the holders of the Trust Securities issued by the Trust, the Company shall pursue such Ministerial Action in lieu of redemption, and, provided further, that the Company shall have no right to redeem the Debentures while it is pursuing any Ministerial Action pursuant to its obligations hereunder, and, provided further, that, if it is determined that the taking of a Ministerial Action would not eliminate the Tax Event within the 180-Day Period, the Company's right to redeem the Debentures shall be restored and it shall have no further obligations to pursue the Ministerial Action. The Redemption Price shall be paid prior to 12:00 noon, New York time, on the date of such redemption or such earlier time as the Company determines, provided that the Company shall deposit with the Trustee an amount sufficient to pay the Redemption Price by 10:00 a.m., New York time, on the date such Redemption Price is to be paid. SECTION 3.3. OPTIONAL REDEMPTION BY COMPANY. (a) Subject to the provisions of Section 3.3(b), except as otherwise may be specified in this Indenture, the Company shall have the right to redeem the Debentures, in whole or in part, from time to time, on or after March 31, 2002, at a Redemption Price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest thereon to the date of such redemption. Any redemption pursuant to this Section 3.3(a) shall be made upon not less than 30 days nor more than 60 days notice to the holder of the Debentures, at the Redemption Price. If the Debentures are only partially redeemed pursuant to this Section 3.3, the Debentures shall be redeemed pro rata or by lot or in such other manner as the Trustee shall deem appropriate and fair in its discretion. The Redemption Price shall be paid prior to 12:00 noon, New York time, on the date of such redemption or at such earlier time as the Company determines provided that the Company shall deposit with the Trustee an amount sufficient to pay the Redemption Price by 10:00 a.m., New York time, on the date such Redemption Price is to be paid. 16 22 EXHIBIT 4(c)(1) (b) If a partial redemption of the Debentures would result in the delisting of the Preferred Securities issued by the Trust from The Nasdaq Stock Market's National Market or any comparable level or successor listing or any national securities exchange or other organization on which the Preferred Securities are then listed or quoted, the Company shall not be permitted to effect such partial redemption and may only redeem the Debentures in whole. SECTION 3.4. NOTICE OF REDEMPTION. (a) In case the Company shall desire to exercise such right to redeem all or, as the case may be, a portion of the Debentures in accordance with the right reserved so to do, the Company shall, or shall cause the Trustee to upon receipt of 45 days' written notice from the Company (which notice shall, in the event of a partial redemption, include a representation to the effect that such partial redemption shall not result in the delisting of the Preferred Securities as described in Section 3.3(b) above), give notice of such redemption to holders of the Debentures to be redeemed by mailing, first class postage prepaid, a notice of such redemption not less than 30 days and not more than 60 days before the date fixed for redemption to such holders at their last addresses as they shall appear upon the Debenture Register unless a shorter period is specified in the Debentures to be redeemed. Any notice that is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the registered holder receives the notice. In any case, failure duly to give such notice to the holder of any Debenture designated for redemption in whole or in part, or any defect in the notice, shall not affect the validity of the proceedings for the redemption of any other Debentures. In the case of any redemption of Debentures prior to the expiration of any restriction on such redemption provided in the terms of such Debentures or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with any such restriction. Each such notice of redemption shall specify the date fixed for redemption and the Redemption Price and shall state that payment of the Redemption Price shall be made at the Corporate Trust Office, upon presentation and surrender of such Debentures, that interest accrued to the date fixed for redemption shall be paid as specified in said notice and that from and after said date interest shall cease to accrue. If less than all the Debentures are to be redeemed, the notice to the holders of the Debentures shall specify the particular Debentures to be redeemed. If the Debentures are to be redeemed in part only, the notice shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the redemption date, upon surrender of such Debenture, a new Debenture or Debentures in principal amount equal to the unredeemed portion thereof shall be issued. (b) If less than all the Debentures are to be redeemed, the Company shall give the Trustee at least 45 days' notice in advance of the date fixed for redemption as to the aggregate principal amount of Debentures to be redeemed, and thereupon the Trustee shall select, by lot or in such other manner as it shall deem appropriate and fair in its discretion, the portion or portions (equal to $25 or any integral multiple thereof) of the Debentures to be redeemed and shall thereafter promptly notify the Company in writing of the numbers of the Debentures to be redeemed, in whole or in part. The Company may, if and whenever it shall so elect pursuant to the terms hereof, by delivery of instructions signed on its behalf by its President or any Vice President, instruct the Trustee or any paying agent to call all or any part of the Debentures for redemption and to give notice of redemption in the manner set forth in this Section 3.4, such notice to be in the name of the Company or its own name as the Trustee or such paying agent may deem advisable. In any case in which notice of redemption is to be given by the Trustee or any such paying agent, the Company shall deliver or cause to be delivered to, or permit to remain with, the Trustee or such paying agent, as the case 17 23 EXHIBIT 4(c)(1) may be, such Debenture Register, transfer books or other records, or suitable copies or extracts therefrom, sufficient to enable the Trustee or such paying agent to give any notice by mail that may be required under the provisions of this Section 3.4. SECTION 3.5. PAYMENT UPON REDEMPTION. (a) If the giving of notice of redemption shall have been completed as above provided, the Debentures or portions of Debentures to be redeemed specified in such notice shall become due and payable on the date and at the place stated in such notice at the applicable Redemption Price, and interest on such Debentures or portions of Debentures shall cease to accrue on and after the date fixed for redemption, unless the Company shall default in the payment of such Redemption Price with respect to any such Debenture or portion thereof. On presentation and surrender of such Debentures on or after the date fixed for redemption at the place of payment specified in the notice, said Debentures shall be paid and redeemed at the Redemption Price (but if the date fixed for redemption is an interest payment date, the interest installment payable on such date shall be payable to the registered holder at the close of business on the applicable record date pursuant to Section 3.3). (b) Upon presentation of any Debenture that is to be redeemed in part only, the Company shall execute and the Trustee shall authenticate and the office or agency where the Debenture is presented shall deliver to the holder thereof, at the expense of the Company, a new Debenture of authorized denomination in principal amount equal to the unredeemed portion of the Debenture so presented. SECTION 3.6. NO SINKING FUND. The Debentures are not entitled to the benefit of any sinking fund. ARTICLE IV. EXTENSION OF INTEREST PAYMENT PERIOD SECTION 4.1. EXTENSION OF INTEREST PAYMENT PERIOD. So long as no Event of Default has occurred and is continuing, the Company shall have the right, at any time and from time to time during the term of the Debentures, to defer payments of interest by extending the interest payment period of such Debentures for a period not exceeding 20 consecutive quarters (the "Extended Interest Payment Period"), during which Extended Interest Payment Period no interest shall be due and payable; provided that no Extended Interest Payment Period may extend beyond the Maturity Date. Interest, the payment of which has been deferred because of the extension of the interest payment period pursuant to this Section 4.1, shall bear interest thereon at the Coupon Rate compounded quarterly for each quarter of the Extended Interest Payment Period (the "Compounded Interest"). At the end of the Extended Interest Payment Period, the Company shall calculate (and deliver such calculation to the Trustee) and pay all interest accrued and unpaid on the Debentures, including any Additional Interest and Compounded Interest (together, the "Deferred Interest") that shall be payable to the holders of the Debentures in whose names the Debentures are registered in the Debenture Register on the first record date after the end of the Extended Interest Payment Period. Before the termination of any Extended Interest 18 24 EXHIBIT 4(c)(1) Payment Period, the Company may further extend such period, provided that such period together with all such further extensions thereof shall not exceed 20 consecutive quarters, or extend beyond the Maturity Date of the Debentures. Upon the termination of any Extended Interest Payment Period and upon the payment of all Deferred Interest then due, the Company may commence a new Extended Interest Payment Period, subject to the foregoing requirements. No interest shall be due and payable during an Extended Interest Payment Period, except at the end thereof, but the Company may prepay at any time all or any portion of the interest accrued during an Extended Interest Payment Period. SECTION 4.2. NOTICE OF EXTENSION. (a) If the Property Trustee is the only registered holder of the Debentures at the time the Company selects an Extended Interest Payment Period, the Company shall give written notice to the Administrative Trustees, the Property Trustee and the Trustee of its selection of such Extended Interest Payment Period two Business Days before the earlier of (i) the next succeeding date on which Distributions on the Trust Securities issued by the Trust are payable; or (ii) the date the Trust is required to give notice of the record date, or the date such Distributions are payable, to The Nasdaq Stock Market's National Market or other applicable self-regulatory organization or to holders of the Preferred Securities issued by the Trust, but in any event at least one Business Day before such record date. (b) If the Property Trustee is not the only holder of the Debentures at the time the Company selects an Extended Interest Payment Period, the Company shall give the holders of the Debentures and the Trustee written notice of its selection of such Extended Interest Payment Period at least two Business Days before the earlier of (i) the next succeeding Interest Payment Date; or (ii) the date the Company is required to give notice of the record or payment date of such interest payment to The Nasdaq Stock Market's National Market or other applicable self-regulatory organization or to holders of the Debentures. (c) The quarter in which any notice is given pursuant to paragraphs (a) or (b) of this Section 4.2 shall be counted as one of the 20 quarters permitted in the maximum Extended Interest Payment Period permitted under Section 4.1. SECTION 4.3. LIMITATION ON TRANSACTIONS. If (i) the Company shall exercise its right to defer payment of interest as provided in Section 4.1 or (ii) there shall have occurred any Event of Default, then (a) the Company shall not declare or pay any dividends or distributions on or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock (other than (i) dividends or distributions in common stock of the Company, or any declaration of a non-cash dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, and (ii) purchases of common stock of the Company related to the rights under any of the Company's benefit plans for its directors, officers or employees); (b) the Company shall not make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities issued by the Company which rank pari passu with or junior in interest to the Debentures; provided, however, that notwithstanding the foregoing the Company may make payments pursuant to its obligations under the Preferred Securities Guarantee; and (c) the Company shall not redeem, purchase or acquire less than all of the outstanding Debentures or any of the Preferred Securities. 19 25 EXHIBIT 4(c)(1) ARTICLE V. PARTICULAR COVENANTS OF COMPANY SECTION 5.1. PAYMENT OF PRINCIPAL AND INTEREST. The Company shall duly and punctually pay or cause to be paid the principal of and interest on the Debentures at the time and place and in the manner provided herein. Each such payment of the principal of or interest on the Debentures shall relate only to the Debentures, shall not be combined with any other payment of the principal of or interest on any other obligation of the Company, and shall be clearly and unmistakably identified as pertaining to the Debentures. SECTION 5.2. MAINTENANCE OF AGENCY. So long as any of the Debentures remain Outstanding, the Company shall maintain an office or agency at such location or locations as may be designated as provided in this Section 5.2, where (i) Debentures may be presented for payment; (ii) Debentures may be presented as hereinabove authorized for registration of transfer and exchange; and (iii) notices and demands to or upon the Company in respect of the Debentures and this Indenture may be given or served, such designation to continue with respect to such office or agency until the Company shall, by written notice signed by its President or a Vice President and delivered to the Trustee, designate some other office or agency for such purposes or any of them. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, notices and demands. The Company shall give the Trustee prompt written notice of any such designation or rescission thereof. SECTION 5.3. PAYING AGENTS. (a) The Trustee shall act as the Paying Agent. If the Company shall appoint one or more paying agents for the Debentures, other than the Trustee, the Company shall cause each such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 5.3: (i) that it shall hold all sums held by it as such agent for the payment of the principal of or interest on the Debentures (whether such sums have been paid to it by the Company or by any other obligor of such Debentures) in trust for the benefit of the Persons entitled thereto; (ii) that it shall give the Trustee notice of any failure by the Company (or by any other obligor of such Debentures) to make any payment of the principal of or interest on the Debentures when the same shall be due and payable; (iii) that it shall, at any time during the continuance of any failure referred to in the preceding paragraph (a)(ii) above, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent; and 20 26 EXHIBIT 4(c)(1) (iv) that it shall perform all other duties of Paying Agent as set forth in this Indenture. (b) If the Company shall act as its own Paying Agent with respect to the Debentures, it shall on or before each due date of the principal of or interest on such Debentures, set aside, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay such principal or interest so becoming due on Debentures until such sums shall be paid to such Persons or otherwise disposed of as herein provided and shall promptly notify the Trustee of such action, or any failure (by it or any other obligor on such Debentures) to take such action. Whenever the Company shall have one or more Paying Agents for the Debentures, it shall, prior to each due date of the principal of or interest on any Debentures, deposit with the Paying Agent a sum sufficient to pay the principal or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal or interest, and (unless such Paying Agent is the Trustee) the Company shall promptly notify the Trustee of this action or failure so to act. (c) Notwithstanding anything in this Section 5.3 to the contrary, (i) the agreement to hold sums in trust as provided in this Section 5.3 is subject to the provisions of Section 13.3 and 13.4; and (ii) the Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same terms and conditions as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. 21 27 EXHIBIT 4(c)(1) SECTION 5.4. APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, shall appoint, in the manner provided in Section 9.10, a Trustee, so that there shall at all times be a Trustee hereunder. SECTION 5.5. COMPLIANCE WITH CONSOLIDATION PROVISIONS. The Company shall not, while any of the Debentures remain outstanding, consolidate with, or merge into, or merge into itself, or sell or convey all or substantially all of its property to any other company unless the provisions of Article XII hereof are complied with. SECTION 5.6. LIMITATION ON TRANSACTIONS. If Debentures are issued to the Trust or a trustee of the Trust in connection with the issuance of Trust Securities by the Trust and (i) there shall have occurred any event that would constitute an Event of Default; (ii) the Company shall be in default with respect to its payment of any obligations under the Preferred Securities Guarantee relating to the Trust; or (iii) the Company shall have given notice of its election to defer payments of interest on such Debentures by extending the interest payment period as provided in this Indenture and such period, or any extension thereof, shall be continuing, then (a) the Company shall not declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock (other than (i) dividends or distributions in common stock of the Company, or any declaration of a non-cash dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, and (ii) purchases of common stock of the Company related to the rights under any of the Company's benefit plans for its directors, officers or employees); (b) the Company shall not make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities issued by the Company which rank pari passu with or junior in interest to the Debentures; provided, however, that the Company may make payments pursuant to its obligations under the Preferred Securities Guarantee; and (c) the Company shall not redeem, purchase or acquire less than all of the outstanding Debentures or any of the Preferred Securities. SECTION 5.7. COVENANTS AS TO THE TRUST. For so long as the Trust Securities of the Trust remain outstanding, the Company shall (i) maintain 100% direct or indirect ownership of the Common Securities of the Trust; provided, however, that any permitted successor of the Company under this Indenture may succeed to the Company's ownership of the Common Securities; (ii) not voluntarily terminate, wind up or liquidate the Trust, except upon prior approval of the Federal Reserve if then so required under applicable capital guidelines or policies of the Federal Reserve and use its reasonable efforts to cause the Trust (a) to remain a business trust, except in connection with a distribution of Debentures, the redemption of all of the Trust Securities of the Trust, or certain mergers, consolidations or amalgamations, each as permitted by the Trust Agreement; and (b) to otherwise continue not to be treated as an association taxable as a corporation or partnership for United States federal income tax purposes; and (iii) use its reasonable efforts to cause each holder of Trust Securities to be treated as owning an individual beneficial interest in the Debentures. In connection with the distribution of the Debentures to the holders of the Preferred Securities issued by the Trust upon a Dissolution Event, the 22 28 EXHIBIT 4(c)(1) Company shall use its best efforts to list such Debentures on The Nasdaq Stock Market's National Market or on such other exchange as the Preferred Securities are then listed. SECTION 5.8. COVENANTS AS TO PURCHASES. Except upon the exercise by the Company of its right to redeem the Debentures pursuant to Section 3.2 upon the occurrence and continuation of a Special Event, the Company shall not purchase any Debentures, in whole or in part, from the Trust prior to March 31, 2002. ARTICLE VI. DEBENTUREHOLDERS' LISTS AND REPORTS BY COMPANY AND TRUSTEE SECTION 6.1. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF DEBENTUREHOLDERS. The Company shall furnish or cause to be furnished to the Trustee (a) on a quarterly basis on each regular record date (as described in Section 2.5) a list, in such form as the Trustee may reasonably require, of the names and addresses of the holders of the Debentures as of such regular record date, provided that the Company shall not be obligated to furnish or cause to furnish such list at any time that the list shall not differ in any respect from the most recent list furnished to the Trustee by the Company (in the event the Company fails to provide such list on a quarterly basis, the Trustee shall be entitled to rely on the most recent list provided by the Company); and (b) at such other times as the Trustee may request in writing within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that, in either case, no such list need be furnished if the Trustee shall be the Debenture Registrar. SECTION 6.2. PRESERVATION OF INFORMATION COMMUNICATIONS WITH DEBENTUREHOLDERS. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Debentures contained in the most recent list furnished to it as provided in Section 6.1 and as to the names and addresses of holders of Debentures received by the Trustee in its capacity as Debenture Registrar for the Debentures (if acting in such capacity). (b) The Trustee may destroy any list furnished to it as provided in Section 6.1 upon receipt of a new list so furnished. (c) Debentureholders may communicate as provided in Section 312(b) of the Trust Indenture Act with other Debentureholders with respect to their rights under this Indenture or under the Debentures. SECTION 6.3. REPORTS BY COMPANY. (a) The Company covenants and agrees to file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from 23 29 EXHIBIT 4(c)(1) time to time by rules and regulations prescribe) that the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file information, documents or reports pursuant to either of such sections, then to file with the Trustee and the Commission, in accordance with the rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports that may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations. (b) The Company covenants and agrees to file with the Trustee and the Commission, in accordance with the rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions and covenants provided for in this Indenture as may be required from time to time by such rules and regulations. (c) The Company covenants and agrees to transmit by mail, first class postage prepaid, or reputable over-night delivery service that provides for evidence of receipt, to the Debentureholders, as their names and addresses appear upon the Debenture Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to subsections (a) and (b) of this Section 6.3 as may be required by rules and regulations prescribed from time to time by the Commission. SECTION 6.4. REPORTS BY TRUSTEE. (a) On or before July 15 in each year in which any of the Debentures are Outstanding, the Trustee shall transmit by mail, first class postage prepaid, to the Debentureholders, as their names and addresses appear upon the Debenture Register, a brief report dated as of the preceding May 15, if and to the extent required under Section 313(a) of the Trust Indenture Act. (b) The Trustee shall comply with Section 313(b) and 313(c) of the Trust Indenture Act. (c) A copy of each such report shall, at the time of such transmission to Debentureholders, be filed by the Trustee with the Company, with each stock exchange upon which any Debentures are listed (if so listed) and also with the Commission. The Company agrees to notify the Trustee when any Debentures become listed on any stock exchange. ARTICLE VII. REMEDIES OF TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF DEFAULT SECTION 7.1. EVENTS OF DEFAULT. (a) Whenever used herein with respect to the Debentures, "Event of Default" means any one or more of the following events that has occurred and is continuing: (i) the Company defaults in the payment of any installment of interest upon any of the 24 30 EXHIBIT 4(c)(1) Debentures, as and when the same shall become due and payable, and continuance of such default for a period of 30 days; provided, however, that a valid extension of an interest payment period by the Company in accordance with the terms of this Indenture shall not constitute a default in the payment of interest for this purpose; (ii) the Company defaults in the payment of the principal on the Debentures as and when the same shall become due and payable whether at maturity, upon redemption, by declaration or otherwise; provided, however, that a valid extension of the maturity of such Debentures in accordance with the terms of this Indenture shall not constitute a default in the payment of principal; (iii) the Company fails to observe or perform any other of its covenants or agreements with respect to the Debentures for a period of 90 days after the date on which written notice of such failure, requiring the same to be remedied and stating that such notice is a "Notice of Default" hereunder, shall have been given to the Company by the Trustee, by registered or certified mail, or to the Company and the Trustee by the holders of at least 25% in principal amount of the Debentures at the time Outstanding; (iv) the Company pursuant to or within the meaning of any Bankruptcy Law (i) commences a voluntary case; (ii) consents to the entry of an order for relief against it in an involuntary case; (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property; or (iv) makes a general assignment for the benefit of its creditors; (v) a court of competent jurisdiction enters an order under any Bankruptcy Law that (i) is for relief against the Company in an involuntary case; (ii) appoints a Custodian of the Company for all or substantially all of its property; or (iii) orders the liquidation of the Company, and the order or decree remains unstayed and in effect for 90 days; or (vi) the Trust shall have voluntarily or involuntarily dissolved, wound-up its business or otherwise terminated its existence except in connection with (i) the distribution of Debentures to holders of Trust Securities in liquidation of their interests in the Trust; (ii) the redemption of all of the outstanding Trust Securities of the Trust; or (iii) certain mergers, consolidations or amalgamations, each as permitted by the Trust Agreement. (b) In each and every such case referred to in items (i) through (vi) of Section 7.1(a), unless the principal of all the Debentures shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Debentures then Outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by such Debentureholders) may declare the principal of all the Debentures to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, notwithstanding anything contained in this Indenture or in the Debentures. (c) At any time after the principal of the Debentures shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the holders of a majority in aggregate principal amount of the Debentures then Outstanding hereunder, by written notice to the Company and the Trustee, may rescind and annul such 25 31 EXHIBIT 4(c)(1) declaration and its consequences if: (i) the Company has paid or deposited with the Trustee a sum sufficient to pay all matured installments of interest upon all the Debentures and the principal of any and all Debentures that shall have become due otherwise than by acceleration (with interest upon such principal, and upon overdue installments of interest, at the rate per annum expressed in the Debentures to the date of such payment or deposit) and the amount payable to the Trustee under Section 9.7; and (ii) any and all Events of Default under this Indenture, other than the nonpayment of principal on Debentures that shall not have become due by their terms, shall have been remedied or waived as provided in Section 7.6. No such rescission and annulment shall extend to or shall affect any subsequent default or impair any right consequent thereon. (d) In case the Trustee shall have proceeded to enforce any right with respect to Debentures under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company and the Trustee shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company and the Trustee shall continue as though no such proceedings had been taken. SECTION 7.2. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE. (a) The Company covenants that (1) in case it shall default in the payment of any installment of interest on any of the Debentures, and such default shall have continued for a period of 90 Business Days; or (2) in case it shall default in the payment of the principal of any of the Debentures when the same shall have become due and payable, whether upon maturity of the Debentures or upon redemption or upon declaration or otherwise, then, upon demand of the Trustee, the Company shall pay to the Trustee, for the benefit of the holders of the Debentures, the whole amount that then shall have been become due and payable on all such Debentures for principal or interest, or both, as the case may be, with interest upon the overdue principal and (if the Debentures are held by the Trust or a trustee of the Trust, without duplication of any other amounts paid by the Trust or trustee in respect thereof) upon overdue installments of interest at the rate per annum expressed in the Debentures; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, and the amount payable to the Trustee under Section 9.7. (b) If the Company shall fail to pay such amounts set forth in Section 7.2(a) forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any action or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or other obligor upon the Debentures and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or other obligor upon the Debentures, wherever situated. (c) In case of any receivership, insolvency, liquidation, bankruptcy, reorganization, readjustment, arrangement, composition or judicial proceedings affecting the Company or the creditors or property thereof, the Trustee shall have power to intervene in such proceedings and take any action therein that may be permitted by the court and shall (except as may be otherwise provided by law) be entitled to file such proofs of claim and other papers and documents as may be necessary or advisable in order to have the claims of the Trustee and of the holders of the Debentures allowed for the entire amount due and payable by the Company 26 32 EXHIBIT 4(c)(1) under this Indenture at the date of institution of such proceedings and for any additional amount that may become due and payable by the Company after such date, and to collect and receive any moneys or other property payable or deliverable on any such claim, and to distribute the same after the deduction of the amount payable to the Trustee under Section 9.7; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the holders of the Debentures to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to such Debentureholders, to pay to the Trustee any amount due it under Section 9.7. (d) All rights of action and of asserting claims under this Indenture, or under any of the terms established with respect to Debentures, may be enforced by the Trustee without the possession of any of such Debentures, or the production thereof at any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for payment to the Trustee of any amounts due under Section 9.7, be for the ratable benefit of the holders of the Debentures. In case of an Event of Default hereunder, the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Nothing contained herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Debentureholder any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or the rights of any holder thereof or to authorize the Trustee to vote in respect of the claim of any Debentureholder in any such proceeding. SECTION 7.3. APPLICATION OF MONEYS COLLECTED. Any moneys collected by the Trustee pursuant to this Article VII with respect to the Debentures shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such moneys on account of principal or interest, upon presentation of the Debentures, and notation thereon of the payment, if only partially paid, and upon surrender thereof if fully paid: FIRST: To the payment of costs and expenses of collection and of all amounts payable to the Trustee under Section 9.7; SECOND: To the payment of all Senior Indebtedness of the Company if and to the extent required by Article XVI; and THIRD: To the payment of the amounts then due and unpaid upon the Debentures for principal and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Debentures for principal and interest, respectively. SECTION 7.4. LIMITATION ON SUITS. (a) No holder of any Debenture shall have any right by virtue or by availing of any provision of this 27 33 EXHIBIT 4(c)(1) Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (i) such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof with respect to the Debentures specifying such Event of Default, as hereinbefore provided; (ii) the holders of not less than 25% in aggregate principal amount of the Debentures then Outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as trustee hereunder; (iii) such holder or holders shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby; and (iv) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity, shall have failed to institute any such action, suit or proceeding; and (v) during such 60 day period, the holders of a majority in principal amount of the Debentures do not give the Trustee a direction inconsistent with the request. (b) Notwithstanding anything contained herein to the contrary or any other provisions of this Indenture, the right of any holder of the Debentures to receive payment of the principal of and interest on the Debentures, as therein provided, on or after the respective due dates expressed in such Debenture (or in the case of redemption, on the redemption date), or to institute suit for the enforcement of any such payment on or after such respective dates or redemption date, shall not be impaired or affected without the consent of such holder and by accepting a Debenture hereunder it is expressly understood, intended and covenanted by the taker and holder of every Debenture with every other such taker and holder and the Trustee, that no one or more holders of Debentures shall have any right in any manner whatsoever by virtue or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of the holders of any other of such Debentures, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Debentures. For the protection and enforcement of the provisions of this Section 7.4, each and every Debentureholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. SECTION 7.5. RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER. (a) Except as otherwise provided in Section 2.9, all powers and remedies given by this Article VII to the Trustee or to the Debentureholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any other powers and remedies available to the Trustee or the holders of the Debentures, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture or otherwise established with respect to such Debentures. (b) No delay or omission of the Trustee or of any holder of any of the Debentures to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or an acquiescence therein; and, subject to the provisions of Section 7.4, every power and remedy given by this Article VII or by law to the Trustee or the Debentureholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Debentureholders. 28 34 EXHIBIT 4(c)(1) SECTION 7.6. CONTROL BY DEBENTUREHOLDERS. The holders of a majority in aggregate principal amount of the Debentures at the time Outstanding, determined in accordance with Section 10.4, shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee; provided, however, that such direction shall not be in conflict with any rule of law or with this Indenture. Subject to the provisions of Section 9.1, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall, by a Responsible Officer or Officers of the Trustee, determine that the proceeding so directed would involve the Trustee in personal liability. The holders of a majority in aggregate principal amount of the Debentures at the time Outstanding affected thereby, determined in accordance with Section 10.4, may on behalf of the holders of all of the Debentures waive any past default in the performance of any of the covenants contained herein and its consequences, except (i) a default in the payment of the principal of or interest on any of the Debentures as and when the same shall become due by the terms of such Debentures otherwise than by acceleration (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal has been deposited with the Trustee (in accordance with Section 7.1(c)); (ii) a default in the covenants contained in Section 5.6; or (iii) in respect of a covenant or provision hereof which cannot be modified or amended without the consent of the holder of each Outstanding Debenture affected; provided, however, that if the Debentures are held by the Trust or a trustee of the Trust, such waiver or modification to such waiver shall not be effective until the holders of a majority in liquidation preference of Trust Securities of the Trust shall have consented to such waiver or modification to such waiver; provided further, that if the consent of the holder of each Outstanding Debenture is required, such waiver shall not be effective until each holder of the Trust Securities of the Trust shall have consented to such waiver. Upon any such waiver, the default covered thereby shall be deemed to be cured for all purposes of this Indenture and the Company, the Trustee and the holders of the Debentures shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 7.7. UNDERTAKING TO PAY COSTS. All parties to this Indenture agree, and each holder of any Debentures by such holder's acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 7.7 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Debentureholder, or group of Debentureholders holding more than 10% in aggregate principal amount of the Outstanding Debentures, or to any suit instituted by any Debentureholder for the enforcement of the payment of the principal of or interest on the Debentures, on or after the respective due dates expressed in such Debenture or established pursuant to this Indenture. 29 35 EXHIBIT 4(c)(1) ARTICLE VIII. FORM OF DEBENTURE AND ORIGINAL ISSUE SECTION 8.1. FORM OF DEBENTURE. The Debenture and the Trustee's Certificate of Authentication to be endorsed thereon are to be substantially in the forms contained as Exhibit A attached hereto and incorporated herein by reference. SECTION 8.2. ORIGINAL ISSUE OF DEBENTURES. Debentures in the aggregate principal amount of $15,463,925 may, upon execution of this Indenture, be executed by the Company and delivered to the Trustee for authentication. If the Underwriters exercise their Option and there is an Option Closing Date (as such terms are defined in the Underwriting Agreement, dated March 17, 1997, by and among the Company, the Trust and Stifel Nicolaus & Company, Incorporated, for itself and as representative of the Underwriters named therein) then, on such Option Closing Date, Debentures in the additional aggregate principal amount of up to $2,319,600 may be executed by the Company and delivered to the Trustee for authentication. In either such event, the Trustee shall thereupon authenticate and deliver said Debentures to or upon the written order of the Company, signed by its Chairman, its Vice Chairman, its President, or any Vice President and its Treasurer or an Assistant Treasurer, without any further action by the Company. ARTICLE IX. CONCERNING TRUSTEE SECTION 9.1. CERTAIN DUTIES AND RESPONSIBILITIES OF TRUSTEE. (a) The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform with respect to the Debentures such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants shall be read into this Indenture against the Trustee. In case an Event of Default has occurred that has not been cured or waived, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (i) the duties and obligations of the Trustee shall with respect to the Debentures be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable with respect to the Debentures except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or 30 36 EXHIBIT 4(c)(1) obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on the part of the Trustee, the Trustee may with respect to the Debentures conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (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 the holders of not less than a majority in principal amount of the Debentures at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture with respect to the Debentures; and (4) none of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Indenture or adequate indemnity against such risk is not reasonably assured to it. SECTION 9.2. NOTICE OF DEFAULTS. Within 90 days after actual knowledge by a Responsible Officer of the Trustee of the occurrence of any default hereunder with respect to the Debentures, the Trustee shall transmit by mail to all holders of the Debentures, as their names and addresses appear in the Debenture Register, notice of such default, unless such default shall have been cured or waived; provided, however, that, except in the case default in the payment of the principal or interest (including any Additional Interest) on any Debenture, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of the directors and/or Responsible Officers of the Trustee determines in good faith that the withholding of such notice is in the interests of the holders of such Debentures; and provided, further, that in the case of any default of the character specified in section 7.1(a)(iii), no such notice to holders of Debentures need be sent until at least 30 days after the occurrence thereof. For the purposes of this Section 9.2, the term "default" means any event which is, or after notice or lapse of time or both, would become, an Event of Default with respect to the Debentures. SECTION 9.3. CERTAIN RIGHTS OF TRUSTEE. Except as otherwise provided in Section 9.1: 31 37 EXHIBIT 4(c)(1) (a) The Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, security or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) Any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by a Board Resolution or an instrument signed in the name of the Company by the President or any Vice President and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer thereof (unless other evidence in respect thereof is specifically prescribed herein); (c) The Trustee shall not be deemed to have knowledge of a default or an Event of Default, other than an Event of Default specified in Section 7.1(a)(i) or (ii), unless and until it receives written notification of such Event of Default from the Company or by holders of at least 25% of the aggregate principal amount of the Debentures at the time Outstanding; (d) The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted hereunder in good faith and in reliance thereon; (e) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Debentureholders, pursuant to the provisions of this Indenture, unless such Debentureholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that may be incurred therein or thereby; nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default (that has not been cured or waived) to exercise with respect to the Debentures such of the rights and powers vested in it by this Indenture, and to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs; (f) The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (g) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, security, or other papers or documents, unless requested in writing so to do by the holders of not less than a majority in principal amount of the Outstanding Debentures (determined as provided in Section 10.4); provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such costs, expenses or liabilities as a condition to so proceeding. The reasonable expense of every such examination shall be paid by the Company or, if paid by the Trustee, shall be repaid by the Company upon demand; and (h) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any 32 38 EXHIBIT 4(c)(1) misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 9.4. TRUSTEE NOT RESPONSIBLE FOR RECITALS, ETC. (a) The Recitals contained herein and in the Debentures shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. (b) The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Debentures. (c) The Trustee shall not be accountable for the use or application by the Company of any of the Debentures or of the proceeds of such Debentures, or for the use or application of any moneys paid over by the Trustee in accordance with any provision of this Indenture, or for the use or application of any moneys received by any paying agent other than the Trustee. SECTION 9.5. MAY HOLD DEBENTURES. The Trustee or any Paying Agent or Debenture Registrar for the Debentures, in its individual or any other capacity, may become the owner or pledgee of Debentures with the same rights it would have if it were not Trustee, Paying Agent or Debenture Registrar. SECTION 9.6. MONEYS HELD IN TRUST. Subject to the provisions of Section 13.5, all moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any moneys received by it hereunder except such as it may agree with the Company to pay thereon. SECTION 9.7. COMPENSATION AND REIMBURSEMENT. (a) The Company covenants and agrees to pay to the Trustee, and the Trustee shall be entitled to, such reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), as the Company and the Trustee may from time to time agree in writing, for all services rendered by it in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee, and, except as otherwise expressly provided herein, the Company shall pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all Persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify the Trustee (and its officers, agents, directors and employees) for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on the part of the Trustee and arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim of liability in the premises. 33 39 EXHIBIT 4(c)(1) (b) The obligations of the Company under this Section 9.7 to compensate and indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Debentures upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Debentures. SECTION 9.8. RELIANCE ON OFFICERS' CERTIFICATE. Except as otherwise provided in Section 9.1, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting to take any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee and such certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted to be taken by it under the provisions of this Indenture upon the faith thereof. SECTION 9.9. DISQUALIFICATION: CONFLICTING INTERESTS. If the Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the Company shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 9.10. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at all times be a Trustee with respect to the Debentures issued hereunder which shall at all times be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or other Person permitted to act as trustee by the Commission, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by federal, state, territorial, or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 9.10, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Company may not, nor may any Person directly or indirectly controlling, controlled by, or under common control with the Company, serve as Trustee. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 9.10, the Trustee shall resign immediately in the manner and with the effect specified in Section 9.11. SECTION 9.11. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. (a) The Trustee or any successor hereafter appointed, may at any time resign by giving written notice thereof to the Company and by transmitting notice of resignation by mail, first class postage prepaid, to the Debentureholders, as their names and addresses appear upon the Debenture Register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee with respect to 34 40 EXHIBIT 4(c)(1) Debentures by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the mailing of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee with respect to Debentures, or any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months may, subject to the provisions of Section 9.9, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (b) In case at any time any one of the following shall occur (i) the Trustee shall fail to comply with the provisions of Section 9.9 after written request therefor by the Company or by any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months; or (ii) the Trustee shall cease to be eligible in accordance with the provisions of Section 9.10 and shall fail to resign after written request therefor by the Company or by any such Debentureholder; or (iii) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or commence a voluntary bankruptcy proceeding, or a receiver of the Trustee or of its property shall be appointed or consented to, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Company may remove the Trustee with respect to all Debentures and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 9.9, unless the Trustee's duty to resign is stayed as provided herein, any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months may, on behalf of that holder and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The holders of a majority in aggregate principal amount of the Debentures at the time Outstanding may at any time remove the Trustee by so notifying the Trustee and the Company and may appoint a successor Trustee with the consent of the Company. (d) Any resignation or removal of the Trustee and appointment of a successor trustee with respect to the Debentures pursuant to any of the provisions of this Section 9.11 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 9.12. (e) Any successor trustee appointed pursuant to this Section 9.11 may be appointed with respect to the Debentures, and at any time there shall be only one Trustee with respect to the Debentures. 35 41 EXHIBIT 4(c)(1) SECTION 9.12. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. (a) In case of the appointment hereunder of a successor trustee with respect to the Debentures, every successor trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor trustee all the rights, powers, and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor trustee all property and money held by such retiring Trustee hereunder. (b) Upon request of any successor trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor trustee all such rights, powers and trusts referred to in Section 9.12(a). (c) No successor trustee shall accept its appointment unless at the time of such acceptance such successor trustee shall be qualified and eligible under this Article IX. (d) Upon acceptance of appointment by a successor trustee as provided in this Section 9.12, the Company shall transmit notice of the succession of such trustee hereunder by mail, first class postage prepaid, to the Debentureholders, as their names and addresses appear upon the Debenture Register. If the Company fails to transmit such notice within ten days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be transmitted at the expense of the Company. SECTION 9.13. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided that such corporation shall be qualified under the provisions of Section 9.9 and eligible under the provisions of Section 9.10, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. In case any Debentures shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Debentures so authenticated with the same effect as if such successor Trustee had itself authenticated such Debentures. SECTION 9.14. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY. The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship described in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent included therein. 36 42 EXHIBIT 4(c)(1) ARTICLE X. CONCERNING DEBENTUREHOLDERS SECTION 10.1. EVIDENCE OF ACTION BY HOLDERS. (a) Whenever in this Indenture it is provided that the holders of a majority or specified percentage in aggregate principal amount of the Debentures may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action the holders of such majority or specified percentage have joined therein may be evidenced by any instrument or any number of instruments of similar tenor executed by such holders of Debentures in Person or by agent or proxy appointed in writing. (b) If the Company shall solicit from the Debentureholders any request, demand, authorization, direction, notice, consent, waiver or other action, the Company may, at its option, as evidenced by an Officers' Certificate, fix in advance a record date for the determination of Debentureholders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other action, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other action may be given before or after the record date, but only the Debentureholders of record at the close of business on the record date shall be deemed to be Debentureholders for the purposes of determining whether Debentureholders of the requisite proportion of Outstanding Debentures have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other action, and for that purpose the Outstanding Debentures shall be computed as of the record date; provided, however, that no such authorization, agreement or consent by such Debentureholders on the record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. SECTION 10.2. PROOF OF EXECUTION BY DEBENTUREHOLDERS. Subject to the provisions of Section 9.1, proof of the execution of any instrument by a Debentureholder (such proof shall not require notarization) or his agent or proxy and proof of the holding by any Person of any of the Debentures shall be sufficient if made in the following manner: (a) The fact and date of the execution by any such Person of any instrument may be proved in any reasonable manner acceptable to the Trustee. (b) The ownership of Debentures shall be proved by the Debenture Register of such Debentures or by a certificate of the Debenture Registrar thereof. (c) The Trustee may require such additional proof of any matter referred to in this Section 10.2 as it shall deem necessary. SECTION 10.3. WHO MAY BE DEEMED OWNERS. Prior to the due presentment for registration of transfer of any Debenture, the Company, the Trustee, any Paying Agent, any Authenticating Agent and any Debenture Registrar may deem and treat the Person 37 43 EXHIBIT 4(c)(1) in whose name such Debenture shall be registered upon the books of the Company as the absolute owner of such Debenture (whether or not such Debenture shall be overdue and notwithstanding any notice of ownership or writing thereon made by anyone other than the Debenture Registrar) for the purpose of receiving payment of or on account of the principal of and interest on such Debenture (subject to Section 2.3) and for all other purposes; and neither the Company nor the Trustee nor any Paying Agent nor any Authenticating Agent nor any Debenture Registrar shall be affected by any notice to the contrary. SECTION 10.4. CERTAIN DEBENTURES OWNED BY COMPANY DISREGARDED. In determining whether the holders of the requisite aggregate principal amount of Debentures have concurred in any direction, consent or waiver under this Indenture, the Debentures that are owned by the Company or any other obligor on the Debentures or by any Person directly or indirectly controlling or controlled by or under common control with the Company or any other obligor on the Debentures shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, except that for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Debentures that the Trustee actually knows are so owned shall be so disregarded. The Debentures so owned that have been pledged in good faith may be regarded as Outstanding for the purposes of this Section 10.4, if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right so to act with respect to such Debentures and that the pledgee is not a Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any such other obligor. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. SECTION 10.5. ACTIONS BINDING ON FUTURE DEBENTUREHOLDERS. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 10.1, of the taking of any action by the holders of the majority or percentage in aggregate principal amount of the Debentures specified in this Indenture in connection with such action, any holder of a Debenture that is shown by the evidence to be included in the Debentures the holders of which have consented to such action may, by filing written notice with the Trustee, and upon proof of holding as provided in Section 10.2, revoke such action so far as concerns such Debenture. Except as aforesaid any such action taken by the holder of any Debenture shall be conclusive and binding upon such holder and upon all future holders and owners of such Debenture, and of any Debenture issued in exchange therefor, on registration of transfer thereof or in place thereof, irrespective of whether or not any notation in regard thereto is made upon such Debenture. Any action taken by the holders of the majority or percentage in aggregate principal amount of the Debentures specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the holders of all the Debentures. ARTICLE XI. SUPPLEMENTAL INDENTURES SECTION 11.1. SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF DEBENTUREHOLDERS. In addition to any supplemental indenture otherwise authorized by this Indenture, the Company and 38 44 EXHIBIT 4(c)(1) the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as then in effect), without the consent of the Debentureholders, for one or more of the following purposes: (a) to cure any ambiguity, defect, or inconsistency herein or in the Debentures; (b) to comply with Article X; (c) to provide for uncertificated Debentures in addition to or in place of certificated Debentures; (d) to add to the covenants of the Company for the benefit of the holders of all or any of the Debentures or to surrender any right or power herein conferred upon the Company; (e) to add to, delete from, or revise the conditions, limitations, and restrictions on the authorized amount, terms, or purposes of issue, authentication, and delivery of Debentures, as herein set forth; (f) to make any change that does not adversely affect the rights of any Debentureholder in any material respect; (g) to provide for the issuance of and establish the form and terms and conditions of the Debentures, to establish the form of any certifications required to be furnished pursuant to the terms of this Indenture or of the Debentures, or to add to the rights of the holders of the Debentures; or (h) qualify or maintain the qualification of this Indenture under the Trust Indenture Act. The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into any such supplemental indenture that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section 11.1 may be executed by the Company and the Trustee without the consent of the holders of any of the Debentures at the time Outstanding, notwithstanding any of the provisions of Section 11.2. SECTION 11.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS. With the consent (evidenced as provided in Section 10.1) of the holders of not less than a majority in aggregate principal amount of the Debentures at the time Outstanding, the Company, when authorized by Board Resolutions, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as then in effect) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner not covered by Section 11.1 the rights of the holders of the Debentures under this Indenture; provided, however, that no such supplemental indenture shall without the consent of the holders of each Debenture then Outstanding and affected thereby, (i) extend the fixed maturity of any Debentures, reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, without the consent of the holder of each 39 45 EXHIBIT 4(c)(1) Debenture so affected; or (ii) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture; provided further, that if the Debentures are held by the Trust or a trustee of the Trust, such supplemental indenture shall not be effective until the holders of a majority in liquidation preference of Trust Securities of the Trust shall have consented to such supplemental indenture; provided further, that if the consent of the holder of each Outstanding Debenture is required, such supplemental indenture shall not be effective until each holder of the Trust Securities of the Trust shall have consented to such supplemental indenture. It shall not be necessary for the consent of the Debentureholders affected thereby under this Section 11.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. SECTION 11.3. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture pursuant to the provisions of this Article XI, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Debentures shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. SECTION 11.4. DEBENTURES AFFECTED BY SUPPLEMENTAL INDENTURES. Debentures affected by a supplemental indenture, authenticated and delivered after the execution of such supplemental indenture pursuant to the provisions of this Article XI, may bear a notation in form approved by the Company, provided such form meets the requirements of any exchange upon which the Debentures may be listed, as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Debentures so modified as to conform, in the opinion of the Board of Directors of the Company, to any modification of this Indenture contained in any such supplemental indenture may be prepared by the Company, authenticated by the Trustee and delivered in exchange for the Debentures then Outstanding. SECTION 11.5. EXECUTION OF SUPPLEMENTAL INDENTURES. (a) Upon the request of the Company, accompanied by its Board Resolutions authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Debentureholders required to consent thereto as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion but shall not be obligated to enter into such supplemental indenture. The Trustee, subject to the provisions of Sections 9.1, may receive an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article XI is authorized or permitted by, and conforms to, the terms of this Article XI and that it is proper for the Trustee under the provisions of this Article XI to join in the execution thereof. (b) Promptly after the execution by the Company and the Trustee of any supplemental indenture 40 46 EXHIBIT 4(c)(1) pursuant to the provisions of this Section 11.5, the Trustee shall transmit by mail, first class postage prepaid, a notice, setting forth in general terms the substance of such supplemental indenture, to the Debentureholders as their names and addresses appear upon the Debenture Register. Any failure of the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. ARTICLE XII. SUCCESSOR CORPORATION SECTION 12.1. COMPANY MAY CONSOLIDATE, ETC. Nothing contained in this Indenture or in any of the Debentures shall prevent any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company, as the case may be), or successive consolidations or mergers in which the Company, as the case may be, or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance, transfer or other disposition of the property of the Company, as the case may be, or its successor or successors as an entirety, or substantially as an entirety, to any other corporation (whether or not affiliated with the Company, as the case may be, or its successor or successors) authorized to acquire and operate the same; provided, however, that the Company hereby covenants and agrees that, (i) upon any such consolidation, merger, sale, conveyance, transfer or other disposition, the due and punctual payment, in the case of the Company, of the principal of and interest on all of the Debentures, according to their tenor and the due and punctual performance and observance of all the covenants and conditions of this Indenture to be kept or performed by the Company as the case may be, shall be expressly assumed, by supplemental indenture (which shall conform to the provisions of the Trust Indenture Act, as then in effect) satisfactory in form to the Trustee executed and delivered to the Trustee by the entity formed by such consolidation, or into which the Company, as the case may be, shall have been merged, or by the entity which shall have acquired such property; (ii) in case the Company consolidates with or merges into another Person or conveys or transfers its properties and assets substantially as an entirety to any Person, the successor Person is organized under the laws of the United States or any state or the District of Columbia; and (iii) immediately after giving effect thereto, no Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing. SECTION 12.2. SUCCESSOR CORPORATION SUBSTITUTED. (a) In case of any such consolidation, merger, sale, conveyance, transfer or other disposition and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of, the due and punctual payment of the principal of and interest on all of the Debentures Outstanding and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Company, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named as the Company herein, and thereupon the predecessor corporation shall be relieved of all obligations and covenants under this Indenture and the Debentures. (b) In case of any such consolidation, merger, sale, conveyance, transfer or other disposition such 41 47 EXHIBIT 4(c)(1) changes in phraseology and form (but not in substance) may be made in the Debentures thereafter to be issued as may be appropriate. (c) Nothing contained in this Indenture or in any of the Debentures shall prevent the Company from merging into itself or acquiring by purchase or otherwise all or any part of the property of any other Person (whether or not affiliated with the Company). SECTION 12.3. EVIDENCE OF CONSOLIDATION, ETC. TO TRUSTEE. The Trustee, subject to the provisions of Section 9.1, may receive an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance, transfer or other disposition, and any such assumption, comply with the provisions of this Article XII. ARTICLE XIII. SATISFACTION AND DISCHARGE SECTION 13.1. SATISFACTION AND DISCHARGE OF INDENTURE. If at any time: (a) the Company shall have delivered to the Trustee for cancellation all Debentures theretofore authenticated (other than any Debentures that shall have been destroyed, lost or stolen and that shall have been replaced or paid as provided in Section 2.9) and Debentures for whose payment money or Governmental Obligations have theretofore been deposited in trust or segregated and held in trust by the Company (and thereupon repaid to the Company or discharged from such trust, as provided in Section 13.5); or (b) all such Debentures not theretofore delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit or cause to be deposited with the Trustee as trust funds the entire amount in moneys or Governmental Obligations sufficient, or a combination thereof, sufficient in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay at maturity or upon redemption all Debentures not theretofore delivered to the Trustee for cancellation, including principal and interest due or to become due to such date of maturity or date fixed for redemption, as the case may be, and if the Company shall also pay or cause to be paid all other sums payable hereunder by the Company; then this Indenture shall thereupon cease to be of further effect except for the provisions of Sections 2.3, 2.7, 2.9, 5.1, 5.2, 5.3 and 9.10, that shall survive until the date of maturity or redemption date, as the case may be, and Sections 9.6 and 13.5, that shall survive to such date and thereafter, and the Trustee, on demand of the Company and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture. SECTION 13.2. DISCHARGE OF OBLIGATIONS. If at any time all Debentures not heretofore delivered to the Trustee for cancellation or that have not become due and payable as described in Section 13.1 shall have been paid by the Company by depositing irrevocably with the Trustee as trust funds moneys or an amount of Governmental Obligations sufficient in the opinion of a nationally recognized certified public accounting firm to pay at maturity or upon redemption 42 48 EXHIBIT 4(c)(1) all Debentures not theretofore delivered to the Trustee for cancellation, including principal and interest due or to become due to such date of maturity or date fixed for redemption, as the case may be, and if the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then after the date such moneys or Governmental Obligations, as the case may be, are deposited with the Trustee, the obligations of the Company under this Indenture shall cease to be of further effect except for the provisions of Sections 2.3, 2.7, 2.9, 5.1, 5.2, 5.3, 9.6, 9.10 and 13.5 hereof that shall survive until such Debentures shall mature and be paid. Thereafter, Sections 9.6 and 13.5 shall survive. SECTION 13.3. DEPOSITED MONEYS TO BE HELD IN TRUST. All monies or Governmental Obligations deposited with the Trustee pursuant to Sections 13.1 or 13.2 shall be held in trust and shall be available for payment as due, either directly or through any Paying Agent (including the Company acting as its own Paying Agent), to the holders of the Debentures for the payment or redemption of which such moneys or Governmental Obligations have been deposited with the Trustee. SECTION 13.4. PAYMENT OF MONIES HELD BY PAYING AGENTS. In connection with the satisfaction and discharge of this Indenture, all moneys or Governmental Obligations then held by any Paying Agent under the provisions of this Indenture shall, upon demand of the Company, be paid to the Trustee and thereupon such Paying Agent shall be released from all further liability with respect to such moneys or Governmental Obligations. SECTION 13.5. REPAYMENT TO COMPANY. Any monies or Governmental Obligations deposited with any Paying Agent or the Trustee, or then held by the Company in trust, for payment of principal of or interest on the Debentures that are not applied but remain unclaimed by the holders of such Debentures for at least two years after the date upon which the principal of or interest on such Debentures shall have respectively become due and payable, shall be repaid to the Company, as the case may be, on May 31 of each year or (if then held by the Company) shall be discharged from such trust; and thereupon the Paying Agent and the Trustee shall be released from all further liability with respect to such moneys or Governmental Obligations, and the holder of any of the Debentures entitled to receive such payment shall thereafter, as an unsecured general creditor, look only to the Company for the payment thereof. ARTICLE XIV. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS SECTION 14.1. NO RECOURSE. No recourse under or upon any obligation, covenant or agreement of this Indenture, or of the Debentures, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, stockholder, officer or director, past, present or future as such, of the Company or of any 43 49 EXHIBIT 4(c)(1) predecessor or successor corporation, either directly or through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, stockholders, officers or directors as such, of the Company or of any predecessor or successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, and any and all such rights and claims against, every such incorporator, stockholder, officer or director as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of such Debentures. ARTICLE XV. MISCELLANEOUS PROVISIONS SECTION 15.1. EFFECT ON SUCCESSORS AND ASSIGNS. All the covenants, stipulations, promises and agreements in this Indenture contained by or on behalf of the Company shall bind their respective successors and assigns, whether so expressed or not. SECTION 15.2. ACTIONS BY SUCCESSOR. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the corresponding board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company. SECTION 15.3. SURRENDER OF COMPANY POWERS. The Company by instrument in writing executed by appropriate authority of its Board of Directors and delivered to the Trustee may surrender any of the powers reserved to the Company, and thereupon such power so surrendered shall terminate both as to the Company, as the case may be, and as to any successor corporation. SECTION 15.4. NOTICES. Except as otherwise expressly provided herein any notice or demand that by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Debentures to or on the Company may be given or served by being deposited first class postage prepaid in a post-office letterbox addressed (until another address is filed in writing by the Company with the Trustee), as follows: c/o 1st Source Corporation, 100 North Michigan Avenue, South Bend, Indiana 46601, Attention: Chief 44 50 EXHIBIT 4(c)(1) Financial Officer. Any notice, election, request or demand by the Company or any Debentureholder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made in writing at the Corporate Trust Office of the Trustee. SECTION 15.5. GOVERNING LAW. This Indenture and each Debenture shall be deemed to be a contract made under the internal laws of the State of Indiana and for all purposes shall be construed in accordance with the laws of said State. SECTION 15.6. TREATMENT OF DEBENTURES AS DEBT. It is intended that the Debentures shall be treated as indebtedness and not as equity for federal income tax purposes. The provisions of this Indenture shall be interpreted to further this intention. SECTION 15.7. COMPLIANCE CERTIFICATES AND OPINIONS. (a) Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or demand, no additional certificate or opinion need be furnished. (b) Each certificate or opinion of the Company provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant in this Indenture shall include (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as, in the opinion of such Person, is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. SECTION 15.8. PAYMENTS ON BUSINESS DAYS. In any case where the date of maturity of interest or principal of any Debenture or the date of redemption of any Debenture shall not be a Business Day, then payment of interest or principal may be made on the next succeeding Business Day with the same force and effect as if made on the nominal date of maturity or redemption, and no interest shall accrue for the period after such nominal date. SECTION 15.9. CONFLICT WITH TRUST INDENTURE ACT. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. 45 51 EXHIBIT 4(c)(1) SECTION 15.10. COUNTERPARTS. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. SECTION 15.11. SEPARABILITY. In case any one or more of the provisions contained in this Indenture or in the Debentures shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Indenture or of the Debentures, but this Indenture and the Debentures shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. SECTION 15.12. ASSIGNMENT. The Company shall have the right at all times to assign any of its respective rights or obligations under this Indenture to a direct or indirect wholly owned Subsidiary of the Company, provided that, in the event of any such assignment, the Company shall remain liable for all such obligations. Subject to the foregoing, this Indenture is binding upon and inures to the benefit of the parties thereto and their respective successors and assigns. This Indenture may not otherwise be assigned by the parties thereto. SECTION 15.13. ACKNOWLEDGMENT OF RIGHTS. The Company acknowledges that, with respect to any Debentures held by the Trust or a trustee of the Trust, if the Property Trustee fails to enforce its rights under this Indenture as the holder of the Debentures held as the assets of the Trust, any holder of Preferred Securities may institute legal proceedings directly against the Company to enforce such Property Trustee's rights under this Indenture without first instituting any legal proceedings against such Property Trustee or any other person or entity. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), the Company acknowledges that a holder of Preferred Securities may directly institute a proceeding for enforcement of payment to such holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such holder on or after the respective due date specified in the Debentures. ARTICLE XVI. SUBORDINATION OF DEBENTURES SECTION 16.1. AGREEMENT TO SUBORDINATE. The Company covenants and agrees, and each holder of Debentures issued hereunder by such holder's acceptance thereof likewise covenants and agrees, that all Debentures shall be issued subject to the provisions of this Article XVI; and each holder of a Debenture, whether upon original issue or upon transfer 46 52 EXHIBIT 4(c)(1) or assignment thereof, accepts and agrees to be bound by such provisions. The payment by the Company of the principal of and interest on all Debentures issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and junior in right of payment to the prior payment in full of all Senior Debt, Subordinated Debt and Additional Senior Obligations (collectively, "Senior Indebtedness") to the extent provided herein, whether outstanding at the date of this Indenture or thereafter incurred; provided, however, that the Debentures shall rank pari passu in right of payment with the Company's 9.00% Subordinated Debentures due 2027, issued pursuant to the Indenture, dated as of March 21, 1997, with respect to such debentures by and between the Company and State Street Bank and Trust Company, as trustee thereunder. No provision of this Article XVI shall prevent the occurrence of any default or Event of Default hereunder. SECTION 16.2. DEFAULT ON SENIOR DEBT, SUBORDINATED DEBT OR ADDITIONAL SENIOR OBLIGATIONS. In the event and during the continuation of any default by the Company in the payment of principal, premium, interest or any other payment due on any Senior Indebtedness of the Company, or in the event that the maturity of any Senior Indebtedness of the Company has been accelerated because of a default, then, in either case, no payment shall be made by the Company with respect to the principal (including redemption payments) of or interest on the Debentures. In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding sentence of this Section 16.2, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that the holders of the Senior Indebtedness (or their representative or representatives or a trustee) notify the Trustee in writing within 90 days of such payment of the amounts then due and owing on the Senior Indebtedness and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Indebtedness. SECTION 16.3. LIQUIDATION; DISSOLUTION; BANKRUPTCY. (a) Upon any payment by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due upon all Senior Indebtedness of the Company shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Company on account of the principal or interest on the Debentures; and upon any such dissolution or winding-up or liquidation or reorganization, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holders of the Debentures or the Trustee would be entitled to receive from the Company, except for the provisions of this Article XVI, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the holders of the Debentures or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness of the Company (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, as calculated by the Company) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay such Senior 47 53 EXHIBIT 4(c)(1) Indebtedness in full, in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness, before any payment or distribution is made to the holders of Debentures or to the Trustee. (b) In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Trustee before all Senior Indebtedness of the Company is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, and their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Indebtedness of the Company, as the case may be, remaining unpaid to the extent necessary to pay such Senior Indebtedness in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of such Senior Indebtedness. (c) For purposes of this Article XVI, the words "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article XVI with respect to the Debentures to the payment of all Senior Indebtedness of the Company, as the case may be, that may at the time be outstanding, provided that (i) such Senior Indebtedness is assumed by the new corporation, if any, resulting from any such reorganization or readjustment; and (ii) the rights of the holders of such Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article XII shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 16.3 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article XII. Nothing in Section 16.2 or in this Section 16.3 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 9.7. SECTION 16.4. SUBROGATION. (a) Subject to the payment in full of all Senior Indebtedness of the Company, the rights of the holders of the Debentures shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company, as the case may be, applicable to such Senior Indebtedness until the principal of and interest on the Debentures shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of such Senior Indebtedness of any cash, property or securities to which the holders of the Debentures or the Trustee would be entitled except for the provisions of this Article XVI, and no payment over pursuant to the provisions of this Article XVI to or for the benefit of the holders of such Senior Indebtedness by holders of the Debentures or the Trustee, shall, as between the Company, its creditors other than holders of Senior Indebtedness of the Company, and the holders of the Debentures, be deemed to be a payment by the Company to or on account of such Senior Indebtedness. It is understood that the provisions of this Article XVI are and are intended 48 54 EXHIBIT 4(c)(1) solely for the purposes of defining the relative rights of the holders of the Debentures, on the one hand, and the holders of such Senior Indebtedness on the other hand. (b) Nothing contained in this Article XVI or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as between the Company, its creditors (other than the holders of Senior Indebtedness of the Company), and the holders of the Debentures, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Debentures the principal of and interest on the Debentures as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Debentures and creditors of the Company, as the case may be, other than the holders of Senior Indebtedness of the Company, as the case may be, nor shall anything herein or therein prevent the Trustee or the holder of any Debenture from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XVI of the holders of such Senior Indebtedness in respect of cash, property or securities of the Company, as the case may be, received upon the exercise of any such remedy. (c) Upon any payment or distribution of assets of the Company referred to in this Article XVI, the Trustee, subject to the provisions of Article IX, and the holders of the Debentures shall be entitled to conclusively rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the holders of the Debentures, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Company, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XVI. 49 55 EXHIBIT 4(c)(1) SECTION 16.5. TRUSTEE TO EFFECTUATE SUBORDINATION. Each holder of Debentures by such holder's acceptance thereof authorizes and directs the Trustee on such holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XVI and appoints the Trustee such holder's attorney-in-fact for any and all such purposes. SECTION 16.6. NOTICE BY COMPANY. (a) The Company shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Company that would prohibit the making of any payment of monies to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article XVI. Notwithstanding the provisions of this Article XVI or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of monies to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article XVI, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company or a holder or holders of Senior Indebtedness or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Section 9.1, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 16.6 at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of or interest on any Debenture), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date. (b) The Trustee, subject to the provisions of Section 9.1, shall be entitled to conclusively rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness of the Company (or a trustee on behalf of such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of such Senior Indebtedness to participate in any payment or distribution pursuant to this Article XVI, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article XVI, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 16.7. RIGHTS OF TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS. (a) The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XVI in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. The Trustee's right to compensation and reimbursement of expenses as set forth in Section 9.7 shall not be subject to the subordination provisions of this Article XVI. (b) With respect to the holders of Senior Indebtedness of the Company, the Trustee undertakes to 50 56 EXHIBIT 4(c)(1) perform or to observe only such of its covenants and obligations as are specifically set forth in this Article XVI, and no implied covenants or obligations with respect to the holders of such Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and, subject to the provisions of Section 9.1, the Trustee shall not be liable to any holder of such Senior Indebtedness if it shall pay over or deliver to holders of Debentures, the Company or any other Person money or assets to which any holder of such Senior Indebtedness shall be entitled by virtue of this Article XVI or otherwise. SECTION 16.8. SUBORDINATION MAY NOT BE IMPAIRED. (a) No right of any present or future holder of any Senior Indebtedness of the Company to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or otherwise be charged with. (b) Without in any way limiting the generality of Section 16.8(a), the holders of Senior Indebtedness of the Company may, at any time and from time to time, without the consent of or notice to the Trustee or the holders of the Debentures, without incurring responsibility to the holders of the Debentures and without impairing or releasing the subordination provided in this Article XVI or the obligations hereunder of the holders of the Debentures to the holders of such Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Indebtedness, or otherwise amend or supplement in any manner such Senior Indebtedness or any instrument evidencing the same or any agreement under which such Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Indebtedness; (iii) release any Person liable in any manner for the collection of such Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. [Remainder of page intentionally left blank] 51 57 EXHIBIT 4(c)(1) IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. 1ST SOURCE CORPORATION By: /s/ Christopher J. Murphy III --------------------------------------------- Christopher J. Murphy III President and Chief Executive Officer Attest: /s/ Larry E. Lentych - ----------------------------- Larry E. Lentych STATE STREET BANK AND TRUST COMPANY, as trustee By: /s/ Paul D. Allen --------------------------------------------- Paul D. Allen Vice President Attest: /s/ Eric J. Donaghey - ----------------------------- Eric J. Donaghey 52 58 EXHIBIT 4(c)(1) STATE OF INDIANA ) ) ss: COUNTY OF ST. JOSEPH ) On this ------- day of -------------------------------, 1997, before me appeared Christopher J. Murphy III, to me personally known, who, being by me duly sworn, did say that he is the President and Chief Executive Officer of 1ST SOURCE CORPORATION, and that the seal affixed to said instrument is the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation by authority of its board of directors and said Christopher J. Murphy III, acknowledged said instrument to be the free act and deed of said corporation. In testimony whereof I have hereunto set my hand and affixed my official seal at my office in said county and state the day and year last above written. ------------------------------------------ Notary Public [seal] My term expires: ----------------- COMMONWEALTH OF MASSACHUSETTS ) ) ss: COUNTY OF SUFFOLK ) On this ------- day of -------------------------------, 199---, before me appeared ------------------------------, to me personally known, who, being by me duly sworn, did say that he is the ---------------------------- of STATE STREET BANK AND TRUST COMPANY, and that the seal affixed to said instrument is the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation by authority of its board of directors and said ------------------------------, acknowledged said instrument to be the free act and deed of said corporation. In testimony whereof I have hereunto set my hand and affixed my official seal at my office in said county and state the day and year last above written. ------------------------------------------ Notary Public 53 59 EXHIBIT 4(c)(1) [seal] My term expires: ----------------- 54 60 EXHIBIT 4(c)(1) EXHIBIT A (FORM OF FACE OF DEBENTURE) No.---------------------------- $ ---------- CUSIP No. 336901 AD 5 1ST SOURCE CORPORATION FLOATING RATE SUBORDINATED DEBENTURE DUE MARCH 31, 2027 1st Source Corporation, an Indiana corporation (the "Company," which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to State Street Bank and Trust Company, as Property Trustee, or registered assigns, the principal sum of ($----------) on March 31, 2027 (the "Stated Maturity"), and to pay interest on said principal sum from ----------, 1997, or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears on March 31, June 30, September 30 and December 31 of each year, with the first installment of interest to be paid on June 30, 1997, at a rate per annum of ----% for the period beginning on (and including) the date of original issuance and ending on (but excluding) March 31, 1997 and at a rate per annum for each successive period beginning on (and including) March 31, 1997, and each succeeding Interest Payment Date, and ending on (but excluding) the next succeeding Interest Payment Date (each, a "Distribution Period"), determined by reference to 3-Month Treasury, determined as described below, plus ----% applied to the principal amount hereof, until the principal hereof shall have become due and payable, and on any overdue principal and (without duplication) on any overdue installment of interest at the same rate per annum compounded quarterly. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of interest for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Debenture is not a business day, then payment of interest payable on such date shall be made on the next succeeding day that is a Business Day (as defined in the Indenture) (and without any interest or other payment in respect of any such delay) with the same force and effect as if made on such date. "3-Month Treasury," as used herein, means the yield on United States of America Treasury constant maturities, adjusted to a constant maturity of three (3) months, reported by the Federal Reserve. 3-Month Treasury, with respect to any Distribution Period, shall be determined by the Trustee (as defined below and in the Indenture) as follows: (i) On the second Business Day preceding the commencement of such Distribution Period (each a "Determination Date"), 3-Month Treasury shall be the current yield for United States of America Treasury constant maturities, adjusted to a constant maturity of three (3) months, which appears on the applicable Federal Reserve Statistical Release Series H.15 (519) which includes data for such Determination Date, or Exhibit A-1 61 EXHIBIT 4(c)(1) as then currently furnished or made available by the Federal Reserve if such Series is no longer published; and (ii) if, with respect to any Determination Date, the Trustee is required but unable to determine 3-Month Treasury in the manner provided in clause (i) above, 3-Month Treasury for such Distribution Period shall be 3-Month Treasury as determined on the previous Determination Date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date shall, as provided in the Indenture, be paid to the person in whose name this Debenture (or one or more Predecessor Debentures, as defined in the Indenture) is registered at the close of business on the regular record date for such interest installment, which shall be the fifteenth day of the last month of the calendar quarter in which such Interest Payment Date occurs unless otherwise provided in the Indenture. The principal of and the interest on this Debenture shall be payable at the office or agency of the Trustee maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered holder at such address as shall appear in the Debenture Register. Notwithstanding the foregoing, so long as the holder of this Debenture is the Property Trustee, the payment of the principal of and interest on this Debenture shall be made at such place and to such account as may be designated by the Trustee. The Stated Maturity may be shortened at any time by the Company to any date not earlier than March 31, 2002, subject to the Company having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. Such date may also be extended at any time at the election of the Company for one or more periods, but in no event to a date later than March 31, 2046, subject to certain limitations described in the Indenture. The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, but shall rank pari passu in right of payment with the ----% Subordinated Debentures due 2027 of the Company issued pursuant to the Indenture, dated as of March ----, 1997, with respect to such debentures by and between the Company and State Street Bank and Trust Company, as trustee thereunder. This Debenture is issued subject to the provisions of the Indenture with respect thereto. Each holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions; (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided; and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. This Debenture shall not be entitled to any benefit under the Indenture, be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. The provisions of this Debenture are continued on the reverse side hereof and such continued provisions shall for all purposes have the same effect as though fully set forth at this place. Exhibit A-2 62 EXHIBIT 4(c)(1) IN WITNESS WHEREOF, the Company has caused this instrument to be executed. Dated March --, 1997 1ST SOURCE CORPORATION By: ----------------------------------------- Christopher J. Murphy, III President and Chief Executive Officer Attest: By:-------------------------- Larry E. Lentych Exhibit A-3 63 EXHIBIT 4(c)(1) [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the Debentures described in the within-mentioned Indenture. Dated: STATE STREET BANK AND TRUST COMPANY, ---------------------------------- as Trustee or Authentication Agent By----------------------------------- By-------------------------------- Authorized Signatory Exhibit A-4 64 EXHIBIT 4(c)(1) [FORM OF REVERSE OF DEBENTURE] FLOATING RATE SUBORDINATED DEBENTURE (CONTINUED) This Debenture is one of the subordinated debentures of the Company, (herein sometimes referred to as the "Debentures"), all issued or to be issued under and pursuant to an Indenture dated as of March --, 1997 (the "Indenture"), duly executed and delivered between the Company and State Street Bank and Trust Company, as Trustee (the "Trustee"), to which Indenture reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Debentures. The Debentures are limited in aggregate principal amount as specified in the Indenture. Company shall have the right, as set forth in the Indenture, to redeem this Debenture at the option of the Company, without premium or penalty, in whole or in part at any time on or after March 31, 2002 (an "Optional Redemption"), or at any time in certain circumstances upon the occurrence of a Special Event, at a redemption price (the "Redemption Price") equal to 100% of the principal amount hereof plus any accrued but unpaid interest hereon, to the date of such redemption. Any redemption pursuant to this paragraph shall be made upon not less than 30 days nor more than 60 days notice, at the Redemption Price. The Redemption Price shall be paid at the time and in the manner provided therefor in the Indenture. If the Debentures are only partially redeemed by the Company pursuant to an Optional Redemption, the Debentures shall be redeemed pro rata or by lot or by any other method utilized by the Trustee as described in the Indenture. In the event of an Optional Redemption of this Debenture in part only, a new Debenture or Debentures for the unredeemed portion hereof shall be issued in the name of the holder hereof upon the cancellation hereof. In case an Event of Default (as defined in the Indenture) shall have occurred and be continuing, the principal of all of the Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Debentures at the time Outstanding (as defined in the Indenture) to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Debentures; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of the Debentures except as provided in the Indenture, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, without the consent of the holder of each Debenture so affected; or (ii) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of each Debenture then outstanding and affected thereby. The Indenture also contains provisions permitting the holders of a majority in aggregate principal amount of the Debentures at the time outstanding, on behalf of all of the holders of the Debentures, to waive any past default in the performance of any of the covenants contained in the Indenture, or established pursuant to the Indenture, and its consequences, except a default in the payment of the principal of or interest on any of the Debentures. Any such consent or waiver by the registered holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Debenture and of any Debenture issued in exchange herefor or in place hereof (whether by registration of transfer or otherwise), irrespective of whether or not any notation of such consent or waiver is made upon this Debenture. Exhibit A-5 65 EXHIBIT 4(c)(1) No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal and interest on this Debenture at the time and place and at the rate and in the money herein prescribed. The Company, as further described in the Indenture, shall have the right at any time during the term of the Debentures and from time to time to extend the interest payment period of such Debentures for up to 20 consecutive quarters (each, an "Extended Interest Payment Period"), at the end of which period the Company shall pay all interest then accrued and unpaid (together with interest thereon at the rate specified for the Debentures to the extent that payment of such interest is enforceable under applicable law). Before the termination of any such Extended Interest Payment Period, the Company may further extend such Extended Interest Payment Period, provided that such Extended Interest Payment Period together with all such further extensions thereof shall not exceed 20 consecutive quarters. At the termination of any such Extended Interest Payment Period and upon the payment of all accrued and unpaid interest and any additional amounts then due, the Company may commence a new Extended Interest Payment Period. As provided in the Indenture, and subject to certain limitations therein set forth, this Debenture is transferable by the registered holder hereof on the Debenture Register (as defined in the Indenture) of the Company, upon surrender of this Debenture for registration of transfer at the office or agency of the Trustee accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered holder hereof or his attorney duly authorized in writing, and thereupon one or more new Debentures of authorized denominations and for the same aggregate principal amount shall be issued to the designated transferee or transferees. No service charge shall be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Debenture, the Company, the Trustee, any Paying Agent (as defined in the Indenture) and the Debenture Registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Debenture Registrar) for the purpose of receiving payment of or on account of the principal hereof and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any Paying Agent nor any Debentures Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. The Debentures are issuable only in registered form without coupons in denominations of $25 and any integral multiple thereof. All terms used in this Debenture that are defined in the Indenture shall have the meanings assigned to them in the Indenture. Exhibit A-6 EX-4.(C)(2) 6 FORM OF TRUST AGREEMENT 1 EXHIBIT 4(c)(2) ============================================================================== 1ST SOURCE CAPITAL TRUST II AMENDED AND RESTATED TRUST AGREEMENT AMONG 1ST SOURCE CORPORATION, AS DEPOSITOR STATE STREET BANK AND TRUST COMPANY, AS PROPERTY TRUSTEE WILMINGTON TRUST COMPANY, AS DELAWARE TRUSTEE, AND THE ADMINISTRATIVE TRUSTEES NAMED HEREIN DATED AS OF MARCH 21, 1997 ============================================================================== 2 EXHIBIT 4(c)(2) TABLE OF CONTENTS
PAGE ---- ARTICLE I - DEFINED TERMS 1 Section 101. Definitions 1 ARTICLE II - ESTABLISHMENT OF TRUST 9 Section 201. Name 9 Section 202. Office of Delaware Trustee; Principal Place of Business 9 Section 203. Initial Contribution of Trust Property; Organizational Expenses 9 Section 204. Issuance of Preferred Securities 9 Section 205. Issuance of Common Securities; Subscription and Purchase of Debentures 10 Section 206. Declaration of Trust 10 Section 207. Authorization to Enter into Certain Transactions 10 Section 208. Assets of Trust 13 Section 209. Title to Trust Property 13 ARTICLE III - PAYMENT ACCOUNT 14 Section 301. Payment Account 14 ARTICLE IV - DISTRIBUTIONS; REDEMPTION 14 Section 401. Distributions 14 Section 402. Redemption 16 Section 403. Subordination of Common Securities 17 Section 404. Payment Procedures 18 Section 405. Tax Returns and Reports 18 Section 406. Payment of Taxes, Duties, etc. of Trust 18 Section 407. Payments Under Indenture 19 ARTICLE V - TRUST SECURITIES CERTIFICATES 19 Section 501. Initial Ownership 19 Section 502. Trust Securities Certificates 19 Section 503. Execution, Authentication and Delivery of Trust Securities Certificates 19 Section 504. Registration of Transfer and Exchange of Preferred Securities Certificates 20 Section 505. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates 21 Section 506. Persons Deemed Securityholders 21 Section 507. Access to List of Securityholders' Names and Addresses 21 Section 508. Maintenance of Office or Agency 21 Section 509. Appointment of Paying Agent 22 Section 510. Ownership of Common Securities by Depositor 22 Section 511. Preferred Securities Certificates 22 Section 512. [Intentionally Omitted] 23 Section 513. [Intentionally Omitted] 23 Section 514. Rights of Securityholders 23 ARTICLE VI - ACTS OF SECURITYHOLDERS; MEETINGS; VOTING 23 Section 601. Limitations on Voting Rights 23 i 3 EXHIBIT 4(c)(2) Section 602. Notice of Meetings 24 Section 603. Meetings of Preferred Securityholders 25 Section 604. Voting Rights 25 Section 605. Proxies, etc. 25 Section 606. Securityholder Action by Written Consent 25 Section 607. Record Date for Voting and Other Purposes 26 Section 608. Acts of Securityholders 26 Section 609. Inspection of Records 27 ARTICLE VII - REPRESENTATIONS AND WARRANTIES 27 Section 701. Representations and Warranties of Bank and Property Trustee 27 Section 702. Representations and Warranties of Delaware Bank and Delaware Trustee 28 Section 703. Representations and Warranties of Depositor 29 ARTICLE VIII - TRUSTEES 29 Section 801. Certain Duties and Responsibilities 29 Section 802. Certain Notices 31 Section 803. Certain Rights of Property Trustee 31 Section 804. Not Responsible for Recitals or Issuance of Securities 33 Section 805. May Hold Securities 33 Section 806. Compensation; Indemnity; Fees 33 Section 807. Corporate Property Trustee Required; Eligibility of Trustees 34 Section 808. Conflicting Interests 34 Section 809. Co-Trustees and Separate Trustee 34 Section 810. Resignation and Removal; Appointment of Successor 35 Section 811. Acceptance of Appointment by Successor 37 Section 812. Merger, Conversion, Consolidation or Succession to Business 37 Section 813. Preferential Collection of Claims Against Depositor or Trust 37 Section 814. Reports by Property Trustee 37 Section 815. Reports to Property Trustee 38 Section 816. Evidence of Compliance with Conditions Precedent 38 Section 817. Number of Trustees 38 Section 818. Delegation of Power 39 Section 819. Voting 39 ARTICLE IX - TERMINATION, LIQUIDATION AND MERGER 39 Section 901. Termination Upon Expiration Date 39 Section 902. Early Termination 39 Section 903. Termination 40 Section 904. Liquidation 40 Section 905. Mergers, Consolidations, Amalgamations or Replacements of Trust 41 ARTICLE X - MISCELLANEOUS PROVISIONS 42 Section 1001. Limitation of Rights of Securityholders 42 Section 1002. Amendment 42 Section 1003. Separability 43 Section 1004. Governing law 43 Section 1005. Payments Due on Non-Business Day 43 ii 4 EXHIBIT 4(c)(2) Section 1006. Successors 44 Section 1007. Headings 44 Section 1008. Reports, Notices and Demands 44 Section 1009. Agreement Not to Petition 44 Section 1010. Trust Indenture Act; Conflict with Trust Indenture Act 45 Section 1011. Acceptance of Terms of Trust Agreement, Guarantee and Indenture 46 Exhibit A Certificate of Trust Exhibit B [Intentionally Omitted] Exhibit C Form of Common Securities Certificate Exhibit D Form of Expense Agreement Exhibit E Form of Preferred Securities Certificate
iii 5 EXHIBIT 4(c)(2) CROSS-REFERENCE TABLE
Section of Section of Trust Indenture Act Amended and Restated of 1939, as amended Trust Agreement - ------------------- -------------------- 310(a)(1) 807 310(a)(2) 807 310(a)(3) 807 310(a)(4) 207(a)(ii) 310(b) 808 311(a) 813 311(b) 813 312(a) 507 312(b) 507 312(c) 507 313(a) 814(a) 313(a)(4) 814(b) 313(b) 814(b) 313(c) 1008 313(d) 814(c) 314(a) 815 314(b) Not Applicable 314(c)(1) 816 314(c)(2) 816 314(c)(3) Not Applicable 314(d) Not Applicable 314(e) 101, 816 315(a) 801(a), 803(a) 315(b) 802, 1008 315(c) 801(a) 315(d) 801, 803 316(a)(2) Not Applicable 316(b) Not Applicable 316(c) 607 317(a)(1) Not Applicable 317(a)(2) Not Applicable 317(b) 509 318(a) 1010 Note: This Cross-Reference Table does not constitute part of this Agreement and should not affect the interpretation of any of its terms or provisions.
iv 6 EXHIBIT 4(c)(2) AMENDED AND RESTATED TRUST AGREEMENT AMENDED AND RESTATED TRUST AGREEMENT, dated as of March 21, 1997 among (i) 1ST SOURCE CORPORATION, an Indiana corporation (including any successors or assigns, the "Depositor"), (ii) STATE STREET BANK AND TRUST COMPANY, a trust company duly organized and existing under the laws of the Commonwealth of Massachusetts, as property trustee (the "Property Trustee" and, in its separate corporate capacity and not in its capacity as Property Trustee, the "Bank"), (iii) WILMINGTON TRUST COMPANY, a Delaware banking corporation duly organized and existing under the laws of the State of Delaware, as Delaware trustee (the "Delaware Trustee," and, in its separate corporate capacity and not in its capacity as Delaware Trustee, the "Delaware Bank") (iv) Christopher J. Murphy III, an individual, Wellington D. Jones III, an individual, and Larry E. Lentych, an individual, each of whose address is c/o 1st Source Corporation, 100 North Michigan Street, South Bend, Indiana 46601 (each an "Administrative Trustee" and, collectively, the "Administrative Trustees") (the Property Trustee, the Delaware Trustee and the Administrative Trustees are referred to collectively as the "Trustees"), and (v) the several Holders (as hereinafter defined). RECITALS WHEREAS, the Depositor, the Delaware Trustee, and Christopher J. Murphy III, Wellington D. Jones III and Larry E. Lentych, each as an Administrative Trustee, have heretofore duly declared and established a business trust pursuant to the Delaware Business Trust Act (as hereinafter defined) by the entering into of that certain Amended and Restated Trust Agreement, dated as of February 27, 1997 (the "Original Trust Agreement"), and by the execution and filing by the Delaware Trustee, the Depositor and the Administrative Trustees with the Secretary of State of the State of Delaware of the Certificate of Trust, filed on February 27, 1997, the form of which is attached as Exhibit A; and WHEREAS, the Depositor, the Delaware Trustee, the Property Trustee and the Administrative Trustees desire to amend and restate the Original Trust Agreement in its entirety as set forth herein to provide for, among other things, (i) the issuance of the Common Securities (as defined herein) by the Trust (as defined herein) to the Depositor; (ii) the issuance and sale of the Preferred Securities (as defined herein) by the Trust pursuant to the Underwriting Agreement (as defined herein); (iii) the acquisition by the Trust from the Depositor of all of the right, title and interest in the Debentures (as defined herein); and (iv) the appointment of the Trustees. NOW THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each party, for the benefit of the other parties and for the benefit of the Securityholders (as defined herein), hereby amends and restates the Original Trust Agreement in its entirety and agrees as follows: ARTICLE I DEFINED TERMS SECTION 101. DEFINITIONS. For all purposes of this Trust Agreement, except as otherwise expressly provided or unless the context otherwise requires: 7 EXHIBIT 4(c)(2) (a) the terms defined in this Article I have the meanings assigned to them in this Article I and include the plural as well as the singular; (b) all other terms used herein that are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or a Section, as the case may be, of this Trust Agreement; and (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section or other subdivision. "3-Month Treasury" has the meaning specified in Section 401(e). "Act" has the meaning specified in Section 608. "Additional Amount" means, with respect to Trust Securities of a given Liquidation Amount and/or a given period, the amount of additional interest accrued on interest in arrears and paid by the Depositor on a Like Amount of Debentures for such period. "Additional Interest" has the meaning specified in Section 1.1 of the Indenture. "Administrative Trustee" means each of Christopher J. Murphy III, Wellington D. Jones III and Larry E. Lentych, solely in his capacity as Administrative Trustee of the Trust formed and continued hereunder and not in his individual capacity, or such Administrative Trustee's successor in interest in such capacity, or any successor trustee appointed as herein provided. "Affiliate" means, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities or other ownership interests of the specified Person, any Person 10% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person; (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person; (d) a partnership in which the specified Person is a general partner; (e) any officer or director of the specified Person; and (f) if the specified Person is an individual, any entity of which the specified Person is an officer, director or general partner. "Authenticating Agent" means an authenticating agent with respect to the Preferred Securities appointed by the Property Trustee pursuant to Section 503. "Bank" has the meaning specified in the Preamble to this Trust Agreement. "Bankruptcy Event" means, with respect to any Person: (a) the entry of a decree or order by a court having jurisdiction in the premises adjudging such Person a bankrupt or insolvent, or approving as properly filed a petition seeking liquidation or reorganization of or in respect of such Person under the United States Bankruptcy Code of 1978, as amended, or any other similar applicable federal or state law, and the continuance of any such decree or order unvacated and unstayed for a period of 90 days; or the commencement of an involuntary case under the United States 2 8 EXHIBIT 4(c)(2) Bankruptcy Code of 1978, as amended, in respect of such Person, which shall continue undismissed for a period of 90 days or entry of an order for relief in such case; or the entry of a decree or order of a court having jurisdiction in the premises for the appointment on the ground of insolvency or bankruptcy of a receiver, custodian, liquidator, trustee or assignee in bankruptcy or insolvency of such Person or of its property, or for the winding up or liquidation of its affairs, and such decree or order shall have remained in force unvacated and unstayed for a period of 90 days; or (b) the institution by such Person of proceedings to be adjudicated a voluntary bankrupt, or the consent by such Person to the filing of a bankruptcy proceeding against it, or the filing by such Person of a petition or answer or consent seeking liquidation or reorganization under the United States Bankruptcy Code of 1978, as amended, or other similar applicable Federal or State law, or the consent by such Person to the filing of any such petition or to the appointment on the ground of insolvency or bankruptcy of a receiver or custodian or liquidator or trustee or assignee in bankruptcy or insolvency of such Person or of its property, or shall make a general assignment for the benefit of creditors. "Bankruptcy Laws" has the meaning specified in Section 1009. "Board Resolution" means a copy of a resolution certified by the Secretary 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 appropriate Trustee. "Business Day" means a day other than a Saturday or Sunday, a day on which banking institutions in The City of New York are authorized or required by law, executive order or regulation to remain closed, or a day on which the Property Trustee's Corporate Trust Office or the Corporate Trust Office of the Debenture Trustee is closed for business. "Certificate of Trust" means the certificate of trust filed with the Secretary of State of the State of Delaware with respect to the Trust, as amended or restated from time to time. "Closing Date" means the date of execution and delivery of this Trust Agreement. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Security" means an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $25 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. "Common Securities Certificate" means a certificate evidencing ownership of Common Securities, substantially in the form attached as Exhibit C. "Corporate Trust Office" means the office at which, at any particular time, the corporate trust 3 9 EXHIBIT 4(c)(2) business of the Property Trustee or the Debenture Trustee, as the case may be, shall be principally administered, which office at the date hereof, in each such case, is located at Two International Place, 4th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Department. "Debenture Event of Default" means an "Event of Default" as defined in Section 7.1 of the Indenture. "Debenture Redemption Date" means, with respect to any Debentures to be redeemed under the Indenture, the date fixed for redemption under the Indenture. "Debenture Trustee" means State Street Bank and Trust Company, a banking corporation organized under the laws of the Commonwealth of Massachusetts and any successor thereto, as trustee under the Indenture. "Debentures" means up to $17,783,525 aggregate principal amount of the Depositor's Floating Rate Subordinated Debentures due 2027, issued pursuant to the Indenture. "Delaware Bank" has the meaning specified in the Preamble to this Trust Agreement. "Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Delaware Code Sections 3801 et seq. as it may be amended from time to time. "Delaware Trustee" means the commercial bank or trust company identified as the "Delaware Trustee" in the Preamble to this Trust Agreement solely in its capacity as Delaware Trustee of the Trust formed and continued hereunder and not in its individual capacity, or its successor in interest in such capacity, or any successor trustee appointed as herein provided. "Depositor" has the meaning specified in the Preamble to this Trust Agreement. "Determination Date" has the meaning specified in Section 401(e)(i). "Distribution Date" has the meaning specified in Section 401(a). "Distribution Period" has the meaning specified in Section 401(b). "Distribution Rate" has the meaning specified in Section 401(b). "Distributions" means amounts payable in respect of the Trust Securities as provided in Section 401. "Early Termination Event" has the meaning specified in Section 902. "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 or the Property Trustee in the payment of any Distribution when it 4 10 EXHIBIT 4(c)(2) becomes due and payable, and continuation of such default for a period of 30 days; or (c) default by the Trust or the Property Trustee in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or (d) default in the performance, or breach, in any material respect, of any covenant or warranty of the Trustees in this Trust Agreement (other than a covenant or warranty a default in the performance of which or the breach of which is dealt with in clause (b) or (c), above) and continuation of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the defaulting Trustee or Trustees by the Holders of at least 25% in aggregate Liquidation 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 60 days thereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Expense Agreement" means the Agreement as to Expenses and Liabilities between the Depositor and the Trust, substantially in the form attached as Exhibit D, as amended from time to time. "Expiration Date" has the meaning specified in Section 901. "Extended Interest Payment Period" has the meaning specified in Section 4.1 of the Indenture. "Federal Reserve" means the Board of Governors of the Federal Reserve System. "Guarantee" means the Floating Rate Preferred Securities Guarantee Agreement executed and delivered by the Depositor and State Street Bank and Trust Company, as trustee, contemporaneously with the execution and delivery of this Trust Agreement, for the benefit of the holders of the Preferred Securities, as amended from time to time. "Indenture" means the Indenture, dated as of March 21, 1997, between the Depositor and the Debenture Trustee, as trustee, as amended or supplemented from time to time pertaining to the Debentures of the Depositor. "Investment Company Act," means the Investment Company Act of 1940, as amended, as in effect at the date of execution of this instrument. "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 principal amount of Debentures to be contemporaneously redeemed in accordance with the Indenture and the proceeds of which shall be used to pay the Redemption Price of such Trust Securities; and (b) with respect to a distribution of Debentures to Holders of Trust Securities in connection with a termination or liquidation of the Trust, Debentures having a principal amount equal to the 5 11 EXHIBIT 4(c)(2) Liquidation Amount of the Trust Securities of the Holder to whom such Debentures are distributed. Each Debenture distributed pursuant to clause (b) above shall carry with it accumulated interest in an amount equal to the accumulated and unpaid interest then due on such Debenture. "Liquidation Amount" means the stated amount of $25 per Trust Security. "Liquidation Date" means the date on which Debentures are to be distributed to Holders of Trust Securities in connection with a termination and liquidation of the Trust pursuant to Section 904(a). "Liquidation Distribution" has the meaning specified in Section 904(d). "Officers' Certificate" means a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Controller or an Assistant Controller or 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 816 shall be the principal executive, financial or accounting officer of the Depositor. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Trust Agreement shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Opinion of Counsel" means an opinion in writing of legal counsel, who may be an employee of or counsel for the Trust, the Property Trustee, the Delaware 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 Preferred Securities, means, as of the date of determination, all Preferred Securities theretofore executed and delivered under this Trust Agreement, except: (a) Preferred Securities theretofore canceled by the Property Trustee or delivered to the Property Trustee for cancellation; (b) Preferred Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Property Trustee or any Paying Agent for the Holders of such Preferred Securities; provided that, if such Preferred Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Trust Agreement; and 6 12 EXHIBIT 4(c)(2) (c) Preferred Securities which have been paid or in exchange for or in lieu of which other Preferred Securities have been executed and delivered pursuant to Sections 504, 505 and 511; 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 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 other Obligor upon the Preferred Securities or a Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Depositor or any Affiliate of the Depositor. "Paying Agent" means any paying agent or co-paying agent appointed pursuant to Section 509 and shall initially be the Bank. "Payment Account" means a segregated non-interest-bearing corporate trust account maintained by the Property Trustee with the Bank in its trust department for the benefit of the Securityholders in which all amounts paid in respect of the Debentures shall be held and from which the Property Trustee shall make payments to the Securityholders in accordance with Sections 401 and 402. "Person" means any individual, corporation, partnership, joint venture, trust, limited liability company or corporation, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Security" means an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $25 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. "Preferred Securities Certificate", means a certificate evidencing ownership of Preferred Securities, substantially in the form attached as Exhibit E. "Property Trustee" means the commercial bank or trust company identified as the "Property Trustee," in the Preamble to this Trust Agreement solely in its capacity as Property Trustee of the Trust heretofore formed and continued hereunder and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as herein provided. "Redemption Date" means, with respect to any Trust Security to be redeemed, the date fixed for such redemption by or pursuant to this Trust Agreement; provided that each Debenture Redemption Date and the stated maturity of the Debentures shall be a Redemption Date for a Like Amount of Trust Securities. "Redemption Price" means, with respect to any Trust Security, the Liquidation Amount of such Trust Security, plus accumulated and unpaid Distributions to the Redemption Date, 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. 7 13 EXHIBIT 4(c)(2) "Relevant Trustee" shall have the meaning specified in Section 810. "Securities Register" and "Securities Registrar" have the respective meanings specified in Section 504. "Securityholder" or "Holder" means a Person in whose name a Trust Security or Securities is registered in the Securities Register; any such Person is a beneficial owner within the meaning of the Delaware Business Trust Act. "Trust" means the Delaware business trust created and continued hereby and identified on the cover page to this Trust Agreement. "Trust Agreement" means this Amended and Restated Trust Agreement, as the same may be modified, amended or supplemented in accordance with the applicable provisions hereof, including all exhibits hereto, including, for all purposes of this Trust Agreement and any such modification, amendment or supplement, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this Trust Agreement and any such modification, amendment or supplement, respectively. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939, as amended, is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trust Property" means (a) the Debentures; (b) the rights of the Property Trustee under the Guarantee; (c) any cash on deposit in, or owing to, the Payment Account; and (d) all proceeds and rights in respect of the foregoing and any other property and assets for the time being held or deemed to be held by the Property Trustee pursuant to the trusts of this Trust Agreement. "Trust Security" means any one of the Common Securities or the Preferred Securities. "Trust Securities Certificate" means any one of the Common Securities Certificates or the Preferred Securities Certificates. "Trustees" means, collectively, the Property Trustee, the Delaware Trustee and the Administrative Trustees. "Underwriting Agreement" means the Underwriting Agreement, dated as of March 17, 1997 among the Trust, the Depositor and the Underwriters named therein. ARTICLE II ESTABLISHMENT OF TRUST SECTION 201. NAME. The Trust created and continued hereby shall be known as "1st Source 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 may engage in the 8 14 EXHIBIT 4(c)(2) transactions contemplated hereby, make and execute contracts and other instruments on behalf of the Trust and sue and be sued. SECTION 202. OFFICE OF DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS. The address of the Delaware Trustee in the State of Delaware is c/o Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration, or such other address in the State of Delaware as the Delaware Trustee may designate by written notice to the Securityholders and the Depositor. The principal executive office of the Trust is c/o 1st Source Corporation, 100 North Michigan Street, South Bend, Indiana 46601. SECTION 203. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL EXPENSES. The Trustees acknowledge receipt in trust from the Depositor in connection with the Original Trust Agreement of the sum of $10, which constituted the initial Trust Property. The Depositor shall pay organizational expenses of the Trust as they arise or shall, upon request of any Trustee, promptly reimburse such Trustee for any such expenses paid by such Trustee. The Depositor shall make no claim upon the Trust Property for the payment of such expenses. SECTION 204. ISSUANCE OF PREFERRED SECURITIES. On March 17, 1997, the Depositor and an Administrative Trustee, on behalf of the Trust and pursuant to the Original Trust Agreement, executed and delivered the Underwriting Agreement. Contemporaneously with the execution and delivery of this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 502 and deliver in accordance with the Underwriting Agreement, Preferred Securities Certificates, registered in the name of the Persons entitled thereto, in an aggregate amount of 600,000 Preferred Securities having an aggregate Liquidation Amount of $15,000,000 against receipt of the aggregate purchase price of such Preferred Securities of $15,000,000, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. If the underwriters exercise their Option and there is an Option Closing Date (as such terms are defined in the Underwriting Agreement), then an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 502 and deliver in accordance with the Underwriting Agreement, additional Preferred Securities Certificates, registered in the name of the Persons entitled thereto, in an aggregate amount of up to 90,000 Preferred Securities having an aggregate Liquidation Amount of up to $2,250,000 against receipt of the aggregate purchase price of such Preferred Securities equal to the product of $25 multiplied by the number of Preferred Securities purchased pursuant to the Option, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. SECTION 205. ISSUANCE OF COMMON SECURITIES; SUBSCRIPTION AND PURCHASE OF DEBENTURES. (a) Contemporaneously with the execution and delivery of this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 502 and deliver to the Depositor, 18,557 Common Securities Certificates, registered in the name of the Depositor, in an aggregate amount of Common Securities having an aggregate Liquidation Amount of $463,925 against payment by the Depositor of such amount. Contemporaneously therewith, an Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase from the Depositor Debentures, registered in the name of the Property Trustee on behalf of the Trust and having an aggregate principal amount equal to $15,463,925, and, in satisfaction of the purchase price for such Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the 9 15 EXHIBIT 4(c)(2) Depositor the sum of $15,463,925. (b) If the underwriters exercise the Option and there is an Option Closing Date, then an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 502 and deliver to the Depositor, additional Common Securities Certificates, registered in the name of the Depositor, in an aggregate amount of up to 2,784 Common Securities having an aggregate Liquidation Amount of up to $69,600 against payment by the Depositor of an amount equal to the product of $25 multiplied by the number of additional Common Securities purchased by the Depositor. Contemporaneously therewith, an Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase from the Depositor, Debentures, registered in the name of the Property Trustee on behalf of the Trust and having an aggregate principal amount of up to $2,319,600, and, in satisfaction of the purchase price of such Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the Depositor an amount equal to the sum of the amounts received from one of the Administrative Trustees pursuant to the first sentence of this Section 205(b) and the last sentence of Section 204. SECTION 206. DECLARATION OF TRUST. The exclusive purposes and functions of the Trust are (a) to issue and sell Trust Securities and use the proceeds from such sale to acquire the Debentures; and (b) to engage in those activities necessary, convenient or incidental thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to have all the rights, powers and duties to the extent set forth herein, and the Trustees hereby accept such appointment. The Property Trustee hereby declares that it shall hold the Trust Property in trust upon and subject to the conditions set forth herein for the benefit of the Securityholders. The Administrative Trustees shall have all rights, powers and duties set forth herein and in accordance with applicable law with respect to accomplishing the purposes of the Trust. The Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities, of the Property Trustee or the Administrative Trustees set forth herein. The Delaware Trustee shall be one of the Trustees of the Trust for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Delaware Business Trust Act. SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS. (a) The Trustees shall conduct the affairs of the Trust in accordance with the terms of this Trust Agreement. Subject to the limitations set forth in paragraph (b) of this Section 207 and Article VIII, and in accordance with the following provisions (i) and (ii), the Administrative Trustees shall have the authority to enter into all transactions and agreements determined by the Administrative Trustees to be appropriate in exercising the authority, express or implied, otherwise granted to the Administrative Trustees under this Trust Agreement, and to perform all acts in furtherance thereof, including without limitation, the following: (i) As among the Trustees, each Administrative Trustee, acting singly or jointly, shall have the power and authority to act on behalf of the Trust with respect to the following matters: (A) the issuance and sale of the Trust Securities; (B) to cause the Trust to enter into, and to execute, deliver and perform on behalf of the Trust, the Expense Agreement and such other agreements or documents as may be necessary or desirable in connection with the purposes and function of the Trust; 10 16 EXHIBIT 4(c)(2) (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 of the Preferred Securities upon The Nasdaq Stock Market's National Market or such securities exchange or exchanges as shall be determined by the Depositor and the registration of the Preferred Securities under the Exchange Act, and the preparation and filing of all periodic and other reports and other documents pursuant to the foregoing; (E) the sending of notices (other than notices of default) and other information regarding the Trust Securities and the Debentures to the Securityholders in accordance with this Trust Agreement; (F) the appointment of a Paying Agent, Authenticating Agent and Securities Registrar in accordance with this Trust Agreement; (G) to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware; (H) to take all action that may be necessary or appropriate for the preservation and the continuation of the Trust's valid existence, rights, franchises and privileges as a statutory business trust under the laws of the State of Delaware and of each other jurisdiction in which such existence is necessary to protect the limited liability of the Holders of the Preferred Securities or to enable the Trust to effect the purposes for which the Trust was created; and (I) the taking of any action incidental to the foregoing as the Administrative Trustees may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder). (ii) As among the Trustees, the Property Trustee shall have the power, duty and authority to act on behalf of the Trust with respect to the following matters: (A) the establishment of the Payment Account; (B) the receipt of the Debentures; (C) the collection of interest, principal and any other payments made in respect of the Debentures in the Payment Account; (D) the distribution of amounts owed to the Securityholders in respect of the Trust Securities in accordance with the terms of this Trust Agreement; (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 11 17 EXHIBIT 4(c)(2) Securities and the Debentures to the Securityholders in accordance with this Trust Agreement; (G) the distribution of the Trust Property in accordance with the terms of this Trust Agreement; (H) to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Trust; (I) after an Event of Default, the taking of any action incidental to the foregoing as the Property Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement and protect and conserve the Trust Property for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder); (J) registering transfers of the Trust Securities in accordance with this Trust Agreement; and (K) except as otherwise provided in this Section 207(a)(ii), the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Administrative Trustees set forth in Section 207(a)(i). (b) So long as this Trust Agreement remains in effect, the Trust (or the Trustees acting on behalf of the Trust) shall not undertake any business, activities or transaction except as expressly provided herein or contemplated hereby. In particular, the Trustees shall not (i) acquire any investments or engage in any activities not authorized by this Trust Agreement; (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Securityholders, except as expressly provided herein; (iii) take any action that would cause the Trust to fail or cease to qualify as a "grantor trust" for United States federal income tax purposes; (iv) incur any indebtedness for borrowed money or issue any other debt; or (v) take or consent to any action that would result in the placement of a Lien on any of the Trust Property. The Administrative Trustees shall defend all claims and demands of all Persons at any time claiming any Lien on any of the Trust Property adverse to the interest of the Trust or the Securityholders in their capacity as Securityholders. (c) In connection with the issue and sale of the 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 and the Debentures, 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 to do any and all such acts, other than actions which must be taken by or on behalf of the Trust, and advise the Trustees of actions they must take on behalf of the Trust, and prepare for execution and filing any documents to be executed and filed by the Trust or on behalf of the Trust, as the Depositor deems necessary or advisable in order to comply with the applicable laws of any such States; 12 18 EXHIBIT 4(c)(2) (iii) the preparation for filing by the Trust and execution on behalf of the Trust of an application to The Nasdaq Stock Market's National Market or a national stock exchange or other organizations for listing upon notice of issuance of any Preferred Securities and to file or cause an Administrative Trustee to file thereafter with such exchange or organization such notifications and documents as may be necessary from time to time; (iv) the preparation for filing by the Trust with the Commission and the execution on behalf of the Trust of a registration statement on Form 8-A relating to the registration of the Preferred Securities under Section 12(b) or 12(g) of the Exchange Act, including any amendments thereto; (v) the negotiation of the terms of, and the execution and delivery of, the Underwriting Agreement providing for the sale of the Preferred Securities; and (vi) the taking of any other actions necessary or desirable to carry out any of the foregoing activities. (d) Notwithstanding anything herein to the contrary, the Administrative Trustees are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that the Trust shall not be deemed to be an "investment company" required to be registered under the Investment Company Act, shall be classified as a "grantor trust" and not as an association taxable as a corporation for United States federal income tax purposes and so that the Debentures shall be treated as indebtedness of the Depositor for United States federal income tax purposes. In this connection, subject to Section 1002, the Depositor and the Administrative Trustees are authorized to take any action, not inconsistent with applicable law or this Trust Agreement, that each of the Depositor and the Administrative Trustees determines in their discretion to be necessary or desirable for such purposes. SECTION 208. ASSETS OF TRUST. The assets of the Trust shall consist of the Trust Property. SECTION 209. TITLE TO TRUST PROPERTY. Legal title to all Trust Property shall be vested at all times in the Property Trustee (in its capacity as such) and shall be held and administered by the Property Trustee for the benefit of the Securityholders in accordance with this Trust Agreement. ARTICLE III PAYMENT ACCOUNT SECTION 301. PAYMENT ACCOUNT. (a) On or prior to the Closing Date, the Property Trustee shall establish the Payment Account. The Property Trustee and any agent of the Property Trustee shall have exclusive control and sole right of withdrawal with respect to the Payment Account for the purpose of making deposits and withdrawals from the Payment Account in accordance with this Trust Agreement. All monies and other property deposited or held from time to time in the Payment Account shall be held by the Property Trustee in the Payment Account for the exclusive benefit of the Securityholders and for distribution as herein provided, including 13 19 EXHIBIT 4(c)(2) (and subject to) any priority of payments provided for herein. (b) The Property Trustee shall deposit in the Payment Account, promptly upon receipt, all payments of principal of or interest on, and any other payments or proceeds with respect to, the Debentures. Amounts held in the Payment Account shall not be invested by the Property Trustee pending distribution thereof. ARTICLE IV DISTRIBUTIONS; REDEMPTION SECTION 401. DISTRIBUTIONS. (a) Distributions on the Trust Securities shall be cumulative, and shall accumulate whether or not there are funds of the Trust available for the payment of Distributions. Distributions shall accumulate from March 21, 1997, and, except during any Extended Interest Payment Period with respect to the Debentures, shall be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing on June 30, 1997. If any date on which a Distribution is otherwise payable on the Trust Securities is not a Business Day, then the payment of such Distribution shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) with the same force and effect as if made on such date (each date on which distributions are payable in accordance with this Section 401(a), a "Distribution Date"). (b) The Trust Securities represent undivided beneficial interests in the Trust Property. The Distributions on the Trust Securities shall accrue for the period beginning on (and including) the date of original issuance and ending on (but excluding) March 31, 1997 shall be at a rate per annum of 7.50%, and for each successive period beginning on (and including) March 31, 1997, and each succeeding Distribution Date, and ending on (but excluding) the next succeeding Distribution Date (each, a "Distribution Period"), shall be at a rate per annum determined by reference to 3-Month Treasury, determined as described in Section 401(e), plus 2.25% (the "Distribution Rate"). The amount of Distributions payable for any full period shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of Distributions for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30 day months. Distributions will be calculated by applying the Distribution Rate to the Liquidation Amount of each Preferred Security outstanding at the commencement of the Distribution Period and multiplying each such amount by the actual number of days (based upon a 30-day month) in the Distribution Period concerned divided by 360. All percentages resulting from any calculations referred to in this Trust Agreement will be rounded, if necessary, to the nearest multiple of 1/100 of 1%. During any Extended Interest Payment Period with respect to the Debentures, Distributions on the Preferred Securities shall be deferred for a period equal to the Extended Interest Payment Period. The amount of Distributions payable for any period shall include the Additional Amounts, if any. (c) Distributions on the Trust Securities shall be made by the Property Trustee solely from the Payment Account and shall be payable on each Distribution Date only to the extent that the Trust has funds then on hand and immediately available by 12:30 p.m. on each Distribution Date in the Payment Account for the payment of such Distributions. (d) Distributions on the Trust Securities with respect to a Distribution Date shall be payable to the Holders thereof as they appear on the Securities Register for the Trust Securities on the relevant record 14 20 EXHIBIT 4(c)(2) date, which shall be the 15th day of the month in which the Distribution is payable. (e) "3-Month Treasury" means the yield on United States of America Treasury constant maturities, adjusted to a constant maturity of three (3) months, reported by the Federal Reserve. 3-Month Treasury, with respect to any Distribution Period, shall be determined by the Debenture Trustee, pursuant to the Indenture, as follows: (i) On the second Business Day preceding the commencement of such Distribution Period (each, a "Determination Date"), 3-Month Treasury shall be the current yield for United States of America Treasury constant maturities, adjusted to a constant maturity of three (3) months, which appears on the applicable Federal Reserve Statistical Release Series H.15 (519) which includes data for such Determination Date, or as then currently furnished or made available by the Federal Reserve if such Series is no longer published. (ii) If, with respect to any Determination Date, the Debenture Trustee is required but unable to determine 3-Month Treasury in the manner provided in Section 401(e)(i), 3-Month Treasury for such Distribution Period shall be 3-Month Treasury as determined on the previous Determination Date. (iii) The Distribution Rate for any Distribution Period shall at no time be higher than the maximum rate then permitted by Indiana law as the same may be modified by United States law. (f) The Debenture Trustee, pursuant to the Indenture, shall notify the Depositor, the Property Trustee and any securities exchange or interdealer quotation system on which the Preferred Securities are listed of the Distribution Rate and the Distribution Date for each Distribution Period, in each case as soon as practicable after the determination thereof but in no event later than the seventh Business Day of the relevant Distribution Period. Failure to notify the Depositor, the Property Trustee or any securities exchange or interdealer quotation system, or any defect in said notice, shall not affect the obligation of the Depositor to make payment on the Debentures at the applicable Distribution Rate. Any error in the calculation of the Distribution Rate by the Debenture Trustee may be corrected at any time by notice delivered as above provided. Upon the request of any holder of a Preferred Security, the Debenture Trustee shall, pursuant to the Indenture, provide the Distribution Rate then in effect and, if determined, the Distribution Rate for the next Distribution Period. (g) Subject to the corrective rights set forth above, all certificates, communications, opinions, determinations, calculations, quotations and decisions given, expressed, made or obtained for the purposes of the provisions relating to the payment and calculation of interest on the Debentures and Distributions on the Preferred Securities by the Debenture Trustee or the Property Trustee shall (in the absence of willful default, bad faith and manifest error) be final, conclusive and binding on the Trust, the Depositor and all of the holders of the Debentures and the Preferred Securities, and no liability shall (in the absence of willful default, bad faith or manifest error) attach to the Debenture Trustee or the Property Trustee in connection with the exercise or non-exercise by either of them or their respective powers, duties and discretion. SECTION 402. REDEMPTION. (a) On each Debenture Redemption Date and on the stated maturity of the Debentures, the Trust shall be required to redeem a Like Amount of Trust Securities at the Redemption Price. 15 21 EXHIBIT 4(c)(2) (b) Notice of redemption shall be given by the Property Trustee by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date to each Holder of Trust Securities to be redeemed, at such Holder's address appearing in the Securities Register. The Property Trustee shall have no responsibility for the accuracy of any CUSIP number contained in such notice. All notices of redemption shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) the CUSIP number; (iv) if less than all the Outstanding Trust Securities are to be redeemed, the identification and the aggregate Liquidation Amount of the particular Trust Securities to be redeemed; and (v) that, on the Redemption Date, the Redemption Price shall become due and payable upon each such Trust Security to be redeemed and that Distributions thereon shall cease to accumulate on and after said date. (c) The Trust Securities redeemed on each Redemption Date shall be redeemed at the Redemption Price with the proceeds from the contemporaneous redemption of Debentures. Redemptions of the Trust Securities shall be made and the Redemption Price shall be payable on each Redemption Date only to the extent that the Trust has immediately available funds then on hand and available in the Payment Account for the payment of such Redemption Price. (d) If the Property Trustee gives a notice of redemption in respect of any Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption Date, subject to Section 402(c), the Property Trustee shall deposit with the Paying Agent funds sufficient to pay the applicable Redemption Price and shall give the Paying Agent irrevocable instructions and authority to pay the Redemption Price to the 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 shall 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, and such Trust Securities shall 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 shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay) with the same force and effect as if made on such date. In the event that payment of the Redemption Price in respect of any Trust Securities called for redemption is improperly withheld or refused and not paid either by the Trust or by the Depositor pursuant to the Guarantee, Distributions on such Trust Securities shall continue to accumulate, at the then applicable rate, from the Redemption Date originally established by the Trust for such Trust Securities to the date such Redemption Price is actually paid, in which case the actual payment date shall be the date fixed for redemption for purposes of calculating the Redemption Price. (e) Payment of the Redemption Price on the Trust Securities shall be made to the record holders 16 22 EXHIBIT 4(c)(2) thereof as they appear on the Securities Register for the Trust Securities on the relevant record date, which shall be the date 15 days prior to the relevant Redemption Date. (f) Subject to Section 403(a), if less than all the Outstanding Trust Securities are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of Trust Securities to be redeemed shall be allocated on a pro rata basis (based on Liquidation Amounts) among the Common Securities and the Preferred Securities. The particular Preferred Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Property Trustee from the Outstanding Preferred Securities not previously called for redemption, 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 or an integral multiple of $25 in excess thereof) of the Liquidation Amount of Preferred Securities of a denomination larger than $25. The Property Trustee shall promptly notify the Securities 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 which has been or is to be redeemed. SECTION 403. SUBORDINATION OF COMMON SECURITIES. (a) Payment of Distributions (including Additional Amounts, if applicable) on, and the Redemption Price of, the Trust Securities, as applicable, shall be made, subject to Section 402(f), pro rata among the Common Securities and the 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. (b) In the case of the occurrence of any Event of Default resulting from a Debenture Event of Default, the Holder of Common Securities shall be deemed to have waived any right to act with respect to any such Event of Default under this Trust Agreement until the effect of all such Events of Default with respect to the Preferred Securities shall have been cured, waived or otherwise eliminated. Until any such Event of Default under this Trust Agreement with respect to the Preferred Securities shall have been so cured, waived or otherwise eliminated, the Property Trustee shall act solely on behalf of the Holders of the Preferred Securities and not the Holder of the Common Securities, and only the Holders of the Preferred Securities shall have the right to direct the Property Trustee to act on their behalf. SECTION 404. PAYMENT PROCEDURES. Payments of Distributions (including Additional Amounts, if applicable) in respect of the Preferred Securities shall be made by check mailed to the address of the Person entitled thereto as such address shall 17 23 EXHIBIT 4(c)(2) appear on the Securities Register. Payments in respect of the Common Securities shall be made in such manner as shall be mutually agreed between the Property Trustee and the Common Securityholder. SECTION 405. TAX RETURNS AND REPORTS. The Administrative Trustees shall prepare (or cause to be prepared), at the Depositor's expense, and file all United States federal, state and local tax and information returns and reports required to be filed by or in respect of the Trust. In this regard, the Administrative Trustees shall (a) prepare and file (or cause to be prepared and filed) the appropriate Internal Revenue Service 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 required to be furnished to such Securityholder or the information required to be provided on such form. The Administrative Trustees shall provide the Depositor with a copy of all such returns and reports promptly after such filing or furnishing. The Property Trustee shall comply with United States federal withholding and backup withholding tax laws and information reporting requirements with respect to any payments to Securityholders under the Trust Securities. SECTION 406. PAYMENT OF TAXES, DUTIES, ETC. OF TRUST. Upon receipt under the Debentures of Additional Interest, the Property Trustee, at the direction of an Administrative Trustee or the Depositor, shall promptly pay any taxes, duties or governmental charges of whatsoever nature (other than withholding taxes) imposed on the Trust by the United States or any other taxing authority. SECTION 407. PAYMENTS UNDER INDENTURE. Any amount payable hereunder to any Holder of Preferred Securities shall be reduced by the amount of any corresponding payment such Holder has directly received under the Indenture pursuant to Section 514(b) or (c) hereof. ARTICLE V TRUST SECURITIES CERTIFICATES SECTION 501. INITIAL OWNERSHIP. Upon the creation of the Trust and the contribution by the Depositor pursuant to Section 203 and until the issuance of the Trust Securities, and at any time during which no Trust Securities are outstanding, the Depositor shall be the sole beneficial owner of the Trust. SECTION 502. TRUST SECURITIES CERTIFICATES. The Preferred Securities Certificates shall be issued in minimum denominations of $25 Liquidation Amount and integral multiples of $25 in excess thereof, and the Common Securities Certificates shall be issued in denominations of $25 Liquidation Amount and integral multiples thereof. The Trust Securities Certificates shall be executed on behalf of the Trust by manual or facsimile signature of at least one Administrative Trustee. Trust Securities Certificates bearing the manual or facsimile signatures of individuals who were, at the time when such signatures shall have been affixed, authorized to sign on behalf 18 24 EXHIBIT 4(c)(2) of the Trust, shall be validly issued and entitled to the benefits of this Trust Agreement, notwithstanding that such individuals or any of them shall have ceased to be so authorized prior to the delivery of such Trust Securities Certificates or did not hold such offices at the date of delivery of such Trust Securities Certificates. A transferee of a Trust Securities Certificate shall become a Securityholder, and shall be entitled to the rights and subject to the obligations of a Securityholder hereunder, upon due registration of such Trust Securities Certificate in such transferee's name pursuant to Sections 504 and 511. SECTION 503. EXECUTION, AUTHENTICATION AND DELIVERY OF TRUST SECURITIES CERTIFICATES. (a) On the Closing Date and on the date on which the Underwriter exercises the Option, as applicable (the "Option Closing Date"), the Administrative Trustees shall cause Trust Securities Certificates, in an aggregate Liquidation Amount as provided in Sections 204 and 205, to be executed on behalf of the Trust by at least one of the Administrative Trustees and delivered to or upon the written order of the Depositor, signed by its Chief Executive Officer, President, any Vice President, the Treasurer or any Assistant Treasurer without further corporate action by the Depositor, in authorized denominations. (b) A Preferred Securities Certificate shall not be valid until authenticated by the manual signature of an authorized signatory of the Property Trustee. The signature shall be conclusive evidence that the Preferred Securities Certificate has been authenticated under this Trust Agreement. Each Preferred Security Certificate shall be dated the date of its authentication. (c) Upon the written order of the Trust signed by the Administrative Trustee, the Property Trustee shall authenticate and make available for delivery the Preferred Securities Certificates. (d) The Property Trustee may appoint an Authenticating Agent acceptable to the Trust to authenticate the Preferred Securities. An Authenticating Agent may authenticate the Preferred Securities whenever the Property Trustee may do so. Each reference in this Trust Agreement to authentication by the Property Trustee includes authentication by such agent. An Authenticating Agent has the same rights as the Property Trustee to deal with the Depositor or the Trust. SECTION 504. REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED SECURITIES CERTIFICATES. (a) The Depositor shall keep or cause to be kept, at the office or agency maintained pursuant to Section 508, a register or registers for the purpose of registering Trust Securities Certificates and transfers and exchanges of Preferred Securities Certificates (herein referred to as the "Securities Register") in which the registrar designated by the Depositor (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 510 in the case of the Common Securities Certificates) and registration of transfers and exchanges of Preferred Securities Certificates as herein provided. The Property Trustee shall be the initial Securities Registrar. (b) Upon surrender for registration of transfer of any Preferred Securities Certificate at the office or agency maintained pursuant to Section 508, the Administrative Trustees or any one of them shall execute and deliver, in the name of the designated transferee or transferees, one or more new Preferred Securities Certificates in authorized denominations of a like aggregate Liquidation Amount dated the date of execution by such Administrative Trustee or Trustees. The Securities Registrar shall not be required to register the transfer of any Preferred Securities that have been called for redemption. At the option of a Holder, Preferred Securities Certificates may be exchanged for other Preferred Securities Certificates in authorized 19 25 EXHIBIT 4(c)(2) 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 508. (c) 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 the Property 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 canceled and subsequently disposed of by the Property Trustee in accordance with its customary practice. The Trust shall not be required to (i) issue, register the transfer of, or exchange any Preferred Securities during a period beginning at the opening of business 15 calendar days before the date of mailing of a notice of redemption of any Preferred Securities called for redemption and ending at the close of business on the day of such mailing; or (ii) register the transfer of or exchange any Preferred Securities so selected for redemption, in whole or in part, except the unredeemed portion of any such Preferred Securities being redeemed in part. (d) 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 505. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES CERTIFICATES. If (a) any mutilated Trust Securities Certificate shall be surrendered to the Securities Registrar, or if the Securities Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Trust Securities Certificate; and (b) there shall be delivered to the Securities Registrar and the Administrative Trustees such security or indemnity as may be required by them to save each of them harmless, then in the absence of notice that such Trust Securities Certificate shall have been acquired by a bona fide purchaser, the Administrative Trustees, or any one of them, on behalf of the Trust shall execute and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities Certificate of like class, tenor and denomination. In connection with the issuance of any new Trust Securities Certificate under this Section 505, the Administrative Trustees or the Securities Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Trust Securities Certificate issued pursuant to this Section 505 shall constitute conclusive evidence of an undivided beneficial interest in the assets of the Trust, as if originally issued, whether or not the lost, stolen or destroyed Trust Securities Certificate shall be found at any time. SECTION 506. PERSONS DEEMED SECURITYHOLDERS. The Trustees, the Paying Agent and the Securities Registrar shall treat the Person in whose name any Trust Securities Certificate shall be registered in the Securities Register as the owner of such Trust Securities Certificate for the purpose of receiving Distributions and for all other purposes whatsoever, and neither the Trustees nor the Securities Registrar shall be bound by any notice to the contrary. SECTION 507. ACCESS TO LIST OF SECURITYHOLDERS' NAMES AND ADDRESSES. At any time when the Property Trustee is not also acting as the Securities Registrar, the Administrative Trustees or the Depositor shall furnish or cause to be furnished to the Property Trustee (a) semi-annually on or before January 15 and July 15 in each year, a list, in such form as the Property 20 26 EXHIBIT 4(c)(2) Trustee may reasonably require, of the names and addresses of the Securityholders as of the most recent record date; and (b) promptly after receipt by any Administrative Trustee or the Depositor of a request therefor from the Property Trustee in order to enable the Property Trustee to discharge its obligations under this Trust Agreement, in each case to the extent such information is in the possession or control of the Administrative Trustees or the Depositor and is not identical to a previously supplied list or has not otherwise been received by the Property Trustee in its capacity as Securities Registrar. The rights of Securityholders to communicate with other Securityholders with respect to their rights under this Trust Agreement or under the Trust Securities, and the corresponding rights of the Trustee shall be as provided in the Trust Indenture Act. Each Holder, by receiving and holding a Trust Securities Certificate, and each owner shall be deemed to have agreed not to hold the Depositor, the Property Trustee or the Administrative Trustees accountable by reason of the disclosure of its name and address, regardless of the source from which such information was derived. SECTION 508. MAINTENANCE OF OFFICE OR AGENCY. The Administrative Trustees shall maintain in a location or locations designated by the Administrative Trustees, 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 Corporate Trust Office of the Property Trustee, Two International Place, 4th Floor, Boston, Massachusetts 02110, as the principal corporate trust office for such purposes. The Administrative Trustees shall give prompt written notice to the Depositor and to the Securityholders of any change in the location of the Securities Register or any such office or agency. SECTION 509. APPOINTMENT OF PAYING AGENT. The Paying Agent shall initially be the Property Trustee, and any co-paying agent chosen by the Property Trustee, and acceptable to the Administrative Trustees and the Depositor. The Paying Agent shall make Distributions to Securityholders from the Payment Account and shall report the amounts of such Distributions to the Property Trustee and the Administrative Trustees. Any Paying Agent shall have the revocable power to withdraw funds from the Payment Account for the purpose of making the Distributions referred to above. The Administrative Trustees may revoke such power and remove the Paying Agent if such Trustees determine in their sole discretion that the Paying Agent shall have failed to perform its obligations under this Trust Agreement in any material respect. Any Person acting as Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Administrative Trustees, the Property Trustee and the Depositor. In the event that the Property Trustee shall no longer be the Paying Agent or a successor Paying Agent shall resign or its authority to act be revoked, the Administrative Trustees shall appoint a successor that is acceptable to the Property Trustee and the Depositor to act as Paying Agent (which shall be a bank or trust company). The Administrative Trustees shall cause such successor Paying Agent or any additional Paying Agent appointed by the Administrative Trustees to execute and deliver to the Trustees an instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Trustees that as Paying Agent, such successor Paying Agent or additional Paying Agent shall hold all sums, if any, held by it for payment to the Securityholders in trust for the benefit of the Securityholders entitled thereto until such sums shall be paid to such Securityholders. The Paying Agent shall return all unclaimed funds to the Property Trustee and, upon removal of a Paying Agent, such Paying Agent shall also return all funds in its possession to the Property Trustee. The provisions of Sections 801, 803 and 806 shall apply to the Property Trustee also in its role as Paying Agent, for so long as the Property Trustee shall act as Paying Agent and, to the extent applicable, to any other paying agent appointed hereunder. Any reference in this 21 27 EXHIBIT 4(c)(2) Trust Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise. SECTION 510. 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, any attempted transfer of the Common Securities (other than a transfer in connection with a merger or consolidation of the Depositor into another corporation pursuant to Section 12.1 of the Indenture) shall be void. The Administrative Trustees shall cause each Common Securities Certificate issued to the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE". SECTION 511. PREFERRED SECURITIES CERTIFICATES. (a) Each owner shall receive a Preferred Securities Certificate representing such owner's interest in such Preferred Securities. Upon the issuance of Preferred Securities Certificates, the Trustees shall recognize the record holders of the Preferred Securities Certificates as Securityholders. The Preferred Securities Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrative Trustees, as evidenced by the execution thereof by the Administrative Trustees or any one of them. (b) A single Common Securities Certificate representing the Common Securities shall be issued to the Depositor in the form of a definitive Common Securities Certificate. SECTION 512. [INTENTIONALLY OMITTED]. SECTION 513. [INTENTIONALLY OMITTED]. SECTION 514. RIGHTS OF SECURITYHOLDERS. (a) The legal title to the Trust Property is vested exclusively in the Property Trustee (in its capacity as such) in accordance with Section 209, and the Securityholders shall not have any right or title therein other than the undivided beneficial interest in the assets of the Trust conferred by their Trust Securities and they shall have no right to call for any partition or division of property, profits or rights of the Trust except as described below. The Trust Securities shall be personal property giving only the rights specifically set forth therein and in this Trust Agreement. The Trust Securities shall have no preemptive or similar rights. When issued and delivered to Holders of the Preferred Securities against payment of the purchase price therefor, the Preferred Securities shall be fully paid and nonassessable interests in 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 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 22 28 EXHIBIT 4(c)(2) immediately due and payable, provided that the payment of principal and interest on such Debentures shall remain subordinated to the extent provided in the Indenture. (c) For so long as any Preferred Securities remain outstanding, if, upon a Debenture Event of Default arising from the failure to pay interest or principal on the Debentures, the Holders of any Preferred Securities then Outstanding shall, to the fullest extent permitted by law, have the right to directly institute proceedings for enforcement of payment to such Holders of principal of or interest on the Debentures having a principal amount equal to the Liquidation Amount of the Preferred Securities of such Holders. ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS; VOTING SECTION 601. LIMITATIONS ON VOTING RIGHTS. (a) Except as provided in this Section 601, in Sections 514, 810 and 1002 and in the Indenture and as otherwise required by law, no Holder of Preferred Securities shall have any right to vote or in any manner otherwise control the administration, operation and management of the 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 waivable under Article VII of the Indenture; (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable; or (iv) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, without, in each case, obtaining the prior approval of the Holders of at least a majority in Liquidation Amount of all Outstanding Preferred Securities; provided, however, that where a consent under the Indenture would require the consent of each Holder of outstanding Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior written consent of each holder of Preferred Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of the Outstanding Preferred Securities, except by a subsequent vote of the Holders of the Outstanding Preferred Securities. The Property Trustee shall notify each Holder of the Outstanding 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 Trustees shall, at the expense of the Depositor, obtain an Opinion of Counsel experienced in such matters to the effect that the Trust shall continue to be classified as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes on account of such action. (c) If any proposed amendment to the Trust Agreement provides for, or the Trustees otherwise propose to effect, (i) any action that would adversely affect in any material respect the powers, preferences or special rights of the 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 shall be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the 23 29 EXHIBIT 4(c)(2) approval of the Holders of at least a majority in Liquidation Amount of the Outstanding Preferred Securities. No amendment to this Trust Agreement may be made if, as a result of such amendment, the Trust would cease to be classified as a grantor trust or would be classified as an association taxable as a corporation for United States federal income tax purposes. SECTION 602. NOTICE OF MEETINGS. Notice of all meetings of the Preferred Securityholders, stating the time, place and purpose of the meeting, shall be given by the Property Trustee pursuant to Section 1008 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. SECTION 603. MEETINGS OF PREFERRED SECURITYHOLDERS. (a) No annual meeting of Securityholders is required to be held. The Administrative Trustees, however, shall call a meeting of Securityholders to vote on any matter in respect of which Preferred Securityholders are entitled to vote upon the written request of the Preferred Securityholders of 25% of the Outstanding Preferred Securities (based upon their aggregate Liquidation Amount) and the Administrative Trustees or the Property Trustee may, at any time in their discretion, call a meeting of Preferred Securityholders to vote on any matters as to which the Preferred Securityholders are entitled to vote. (b) Preferred Securityholders of record of 50% of the Outstanding Preferred Securities (based upon their aggregate Liquidation Amount), present in person or by proxy, shall constitute a quorum at any meeting of Securityholders. (c) If a quorum is present at a meeting, an affirmative vote by the Preferred Securityholders of record present, in person or by proxy, holding more than a majority of the Preferred Securities (based upon their aggregate Liquidation Amount) held by the Preferred Securityholders of record present, either in person or by proxy, at such meeting shall constitute the action of the Securityholders, unless this Trust Agreement requires a greater number of affirmative votes. SECTION 604. VOTING RIGHTS. Securityholders shall be entitled to one vote for each $25 of Liquidation Amount represented by their Trust Securities in respect of any matter as to which such Securityholders are entitled to vote. SECTION 605. PROXIES, ETC. At any meeting of Securityholders, any Securityholder entitled to vote thereat may vote by proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Administrative Trustees, or with such other officer or agent of the Trust as the Administrative Trustees may direct, for verification prior to the time at which such vote shall be taken. 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 24 30 EXHIBIT 4(c)(2) rest on the challenger. No proxy shall be valid more than three years after its date of execution. SECTION 606. SECURITYHOLDER ACTION BY WRITTEN CONSENT. Any action which may be taken by Securityholders at a meeting may be taken without a meeting if Securityholders holding more than a majority of all Outstanding Trust Securities (based upon their aggregate Liquidation Amount) entitled to vote in respect of such action (or such larger proportion thereof as shall be required by any express provision of this Trust Agreement) shall consent to the action in writing (based upon their aggregate Liquidation Amount). SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES. For the purposes of determining the Securityholders who are entitled to notice of and to vote at any meeting or by written consent, or to participate in any Distribution on the Trust Securities in respect of which a record date is not otherwise provided for in this Trust Agreement, or for the purpose of any other action, the Administrative Trustees may from time to time fix a date, not more than 90 days prior to the date of any meeting of Securityholders or the payment of Distribution or other action, as the case may be, as a record date for the determination of the identity of the Securityholders of record for such purposes. SECTION 608. ACTS OF SECURITYHOLDERS. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Trust Agreement to be given, made or taken by Securityholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders in person or by an agent duly appointed in writing; and, except as otherwise expressly provided herein, such action shall become effective when such instrument or instruments are delivered to an Administrative Trustee. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Securityholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Trust Agreement and (subject to Section 801) conclusive in favor of the Trustees, if made in the manner provided in this Section 608. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which any Trustee receiving the same deems sufficient. (c) The ownership of Preferred Securities shall be proved by the Securities Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Securityholder of any Trust Security shall bind every future Securityholder of the same Trust Security and the Securityholder of every Trust Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustees or the Trust in reliance thereon, whether or not notation of such action is made upon such Trust Security. 25 31 EXHIBIT 4(c)(2) (e) Without limiting the foregoing, a Securityholder entitled hereunder to take any action hereunder with regard to any particular Trust Security may do so with regard to all or any part of the Liquidation Amount of such Trust Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such Liquidation Amount. (f) A Securityholder may institute a legal proceeding directly against the Depositor under the Guarantee to enforce its rights under the Guarantee without first instituting a legal proceeding against the Guarantee Trustee (as defined in the Guarantee), the Trust or any Person. SECTION 609. INSPECTION OF RECORDS. Upon reasonable notice to the Administrative Trustees and the Property Trustee, the records of the Trust shall be open to inspection and copying by Securityholders and their authorized representatives during normal business hours for any purpose reasonably related to such Securityholder's interest as a Securityholder. ARTICLE VII REPRESENTATIONS AND WARRANTIES SECTION 701. REPRESENTATIONS AND WARRANTIES OF BANK AND PROPERTY TRUSTEE. The Bank and the Property Trustee, each severally on behalf of and as to itself, as of the date hereof, and each successor Property Trustee at the time of the successor Property Trustee's acceptance of its appointment as Property Trustee hereunder (the term "Bank" being used to refer to such successor Property Trustee in its separate corporate capacity) hereby represents and warrants (as applicable) for the benefit of the Depositor and the Securityholders that: (a) the Bank is a trust company duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts; (b) the Bank has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement; (c) this Trust Agreement has been duly authorized, executed and delivered by the Property Trustee and constitutes the valid and legally binding agreement of the Property Trustee enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors, rights and to general equity principles; (d) the execution, delivery and performance by the Property Trustee of this Trust Agreement has been duly authorized by all necessary corporate or other action on the part of the Property Trustee and does not require any approval of stockholders of the Bank and such execution, delivery and performance shall not (i) violate the Bank's charter or by-laws; (ii) violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties included in the Trust Property pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Property Trustee or the Bank is a party or by which 26 32 EXHIBIT 4(c)(2) it is bound; or (iii) violate any law, governmental rule or regulation of the United States or the Commonwealth of Massachusetts, as the case may be, governing the banking or trust powers of the Bank or the Property Trustee (as appropriate in context) or any order, judgment or decree applicable to the Property Trustee or the Bank; (e) neither the authorization, execution or delivery by the Property Trustee of this Trust Agreement nor the consummation of any of the transactions by the Property Trustee contemplated herein or therein requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to any governmental authority or agency under any existing federal law governing the banking or trust powers of the Bank or the Property Trustee, as the case may be, under the laws of the United States or the Commonwealth of Massachusetts; and (f) there are no proceedings pending or, to the best of the Property Trustee's knowledge, threatened against or affecting the Bank or the Property Trustee in any court or before any governmental authority, agency or arbitration board or tribunal which, individually or in the aggregate, would materially and adversely affect the Trust or would question the right, power and authority of the Property Trustee to enter into or perform its obligations as one of the Trustees under this Trust Agreement. SECTION 702. REPRESENTATIONS AND WARRANTIES OF DELAWARE BANK AND DELAWARE TRUSTEE. The Delaware Bank and the Delaware Trustee, each severally on behalf of and as to itself, as of the date hereof, and each successor Delaware Trustee at the time of the successor Delaware Trustee's acceptance of appointment as Delaware Trustee hereunder (the term "Delaware Bank" being used to refer to such successor Delaware Trustee in its separate corporate capacity), hereby represents and warrants (as applicable) for the benefit of the Depositor and the Securityholders that: (a) the Delaware Bank is a Delaware banking corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) the Delaware Bank has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement; (c) this Trust Agreement has been duly authorized, executed and delivered by the Delaware Trustee and constitutes the valid and legally binding agreement of the Delaware Trustee enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors, rights and to general equity principles; (d) the execution, delivery and performance by the Delaware Trustee of this Trust Agreement has been duly authorized by all necessary corporate or other action on the part of the Delaware Trustee and does not require any approval of stockholders of the Delaware Bank and such execution, delivery and performance shall not (i) violate the Delaware Bank's charter or by-laws; (ii) violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties included in the Trust Property pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Delaware Bank or the Delaware Trustee is a party or by which it is bound; or (iii) violate any law, governmental rule or regulation of the United States or the State of Delaware, as the case may be, governing the banking or trust powers of 27 33 EXHIBIT 4(c)(2) the Delaware Bank or the Delaware Trustee (as appropriate in context) or any order, judgment or decree applicable to the Delaware Bank or the Delaware Trustee; (e) neither the authorization, execution or delivery by the Delaware Trustee of this Trust Agreement nor the consummation of any of the transactions by the Delaware Trustee contemplated herein or therein requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to any governmental authority or agency under any existing federal law governing the banking or trust powers of the Delaware Bank or the Delaware Trustee, as the case may be, under the laws of the United States or the State of Delaware; and (f) there are no proceedings pending or, to the best of the Delaware Trustee's knowledge, threatened against or affecting the Delaware Bank or the Delaware Trustee in any court or before any governmental authority, agency or arbitration board or tribunal which, individually or in the aggregate, would materially and adversely affect the Trust or would question the right, power and authority of the Delaware Trustee to enter into or perform its obligations as one of the Trustees under this Trust Agreement. SECTION 703. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR. The Depositor hereby represents and warrants for the benefit of the Securityholders that: (a) the Trust Securities Certificates issued on the Closing Date or the Option Closing Date, if applicable, on behalf of the Trust have been duly authorized and shall be, as of such date or dates, if applicable, duly and validly executed, issued and delivered by the Administrative Trustees pursuant to the terms and provisions of, and in accordance with the requirements of, this Trust Agreement and the Securityholders shall be, as of such date or dates, if applicable, 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 Bank, the Property Trustee or the Delaware Trustee, as the case may be, of this Trust Agreement. ARTICLE VIII TRUSTEES SECTION 801. CERTAIN DUTIES AND RESPONSIBILITIES. (a) The duties and responsibilities of the Trustees shall be as provided by this Trust Agreement and, in the case of the Property Trustee, by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Trust Agreement shall require the Trustees to expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers, if they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. No Administrative Trustee nor the Delaware Trustee shall be liable for its act or omissions hereunder except as a result of its own gross negligence or willful misconduct. The Property Trustee's liability shall be determined under the Trust Indenture Act. Whether or not therein expressly so provided, every provision of this Trust Agreement relating to the conduct or affecting the liability of or affording protection to the Trustees shall be subject to 28 34 EXHIBIT 4(c)(2) the provisions of this Section 801. To the extent that, at law or in equity, the Delaware Trustee or an Administrative Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to the Securityholders, the Delaware Trustee or such Administrative Trustee shall not be liable to the Trust or to any Securityholder for such Trustee's good faith reliance on the provisions of this Trust Agreement. The provisions of this Trust Agreement, to the extent that they restrict the duties and liabilities of the Delaware Trustee or the Administrative Trustees otherwise existing at law or in equity, are agreed by the Depositor and the Securityholders to replace such other duties and liabilities of the Delaware Trustee and the Administrative Trustees, as the case may be. (b) All payments made by the Property Trustee or a Paying Agent in respect of the Trust Securities shall be made only from the revenue and proceeds from the Trust Property and only to the extent that there shall be sufficient revenue or proceeds from the Trust Property to enable the Property Trustee or a Paying Agent to make payments in accordance with the terms hereof. With respect to the relationship of each Securityholder and the Trustee, each Securityholder, by its acceptance of a Trust Security, agrees that it shall look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to it as herein provided and that the Trustees are not personally liable to it for any amount distributable in respect of any Trust Security or for any other liability in respect of any Trust Security. This Section 801(b) does not limit the liability of the Trustees expressly set forth elsewhere in this Trust Agreement or, in the case of the Property Trustee, in the Trust Indenture Act. (c) No provision of this Trust Agreement shall be construed to relieve the Property Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) the Property Trustee shall not be liable for any error of judgment made in good faith by an authorized officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (ii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in Liquidation Amount of the Trust Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Trust Agreement; (iii) the Property Trustee's sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Payment Account shall be to deal with such property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Trust Agreement and the Trust Indenture Act; (iv) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree with the Depositor and money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Payment Account maintained by the Property Trustee pursuant to Section 301 and except to the extent otherwise required by law; and (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 negligence, default or misconduct of the Administrative Trustees or 29 35 EXHIBIT 4(c)(2) the Depositor. SECTION 802. CERTAIN NOTICES. (a) Within 5 Business Days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee shall transmit, in the manner and to the extent provided in Section 1008, notice of such Event of Default to the Securityholders, the Administrative Trustees and the Depositor, unless such Event of Default shall have been cured or waived. For purposes of this Section 802 the term "Event of Default" means any event that is, or after notice or lapse of time or both would become, an Event of Default. (b) The Administrative Trustees shall transmit to the Securityholders, in the manner and to the extent provided in Section 1008, notice of the Depositor's election to begin or further extend an Extended Interest Payment Period on the Debentures (unless such election shall have been revoked) within the time specified for transmitting such notice to the holders of the Debentures pursuant to the Indenture as originally executed. SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE. Subject to the provisions of Section 801: (a) the Property Trustee may rely and shall be protected in acting or refraining from acting in good faith upon any resolution, Opinion of Counsel, certificate, written representation of a Holder or transferee, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) if (i) in performing its duties under this Trust Agreement the Property Trustee is required to decide between alternative courses of action; or (ii) in construing any of the provisions of this Trust Agreement the Property Trustee finds the same ambiguous or inconsistent with other provisions contained herein; or (iii) the Property Trustee is unsure of the application of any provision of this Trust Agreement, then, except as to any matter as to which the 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 10 Business Days after it has delivered such notice, or such reasonably shorter period of time set forth in such notice (which to the extent practicable shall not be less than 2 Business Days), it may, but shall be under no duty to, take or refrain from taking such action not inconsistent with this Trust Agreement as it shall deem advisable and in the best interests of the Securityholders, in which event the Property Trustee shall have no liability except for its own bad faith, negligence or willful misconduct; (c) any direction or act of the Depositor or the Administrative Trustees contemplated by this Trust Agreement shall be sufficiently evidenced by an Officers' Certificate; (d) whenever in the administration of this Trust Agreement, the Property Trustee shall deem it desirable that a matter be established before undertaking, suffering or omitting any action hereunder, the 30 36 EXHIBIT 4(c)(2) Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officer's Certificate which, upon receipt of such request, shall be promptly delivered by the Depositor or the Administrative Trustees; (e) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement, any filing under tax or securities laws or any filing under tax or securities laws) or any rerecording, refiling or reregistration thereof; (f) the Property Trustee may consult with counsel of its choice (which counsel may be counsel to the Depositor or any of its Affiliates) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and, in accordance with such advice, such counsel may be counsel to the Depositor or any of its Affiliates, and may include any of its employees; the Property Trustee shall have the right at any time to seek instructions concerning the administration of this Trust Agreement from any court of competent jurisdiction; (g) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request or direction of any of the Securityholders pursuant to this Trust Agreement, unless such Securityholders shall have offered to the Property Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (h) the Property Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other evidence of indebtedness or other paper or document, unless requested in writing to do so by one or more Securityholders, but the Property Trustee may make such further inquiry or investigation into such facts or matters as it may see fit; (i) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, provided that the Property Trustee shall be responsible for its own negligence or recklessness with respect to selection of any agent or attorney appointed by it hereunder; (j) whenever in the administration of this Trust Agreement the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder the Property Trustee (i) may request instructions from the Holders of the Trust Securities which instructions may only be given by the Holders of the same proportion in Liquidation Amount of the Trust Securities as would be entitled to direct the Property Trustee under the terms of the Trust Securities in respect of such remedy, right or action; (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received; and (iii) shall be protected in acting in accordance with such instructions; and (k) except as otherwise expressly provided by this Trust Agreement, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Trust Agreement. No provision of this Trust Agreement shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise 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 31 37 EXHIBIT 4(c)(2) any such right, power, duty or obligation. No permissive power or authority available to the Property Trustee shall be construed to be a duty. SECTION 804. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The Recitals contained herein and in the Trust Securities Certificates shall be taken as the statements of the Trust, and the Trustees do not assume any responsibility for their correctness. The Trustees shall not be accountable for the use or application by the Depositor of the proceeds of the Debentures. SECTION 805. MAY HOLD SECURITIES. Any Trustee or any other agent of any Trustee or the Trust, in its individual or any other capacity, may become the owner or pledgee of Trust Securities and, subject to Sections 808 and 813 and except as provided in the definition of the term "Outstanding" in Article I, may otherwise deal with the Trust with the same rights it would have if it were not a Trustee or such other agent. SECTION 806. COMPENSATION; INDEMNITY; FEES. The Depositor agrees: (a) to pay to the Trustees from time to time reasonable compensation for all services rendered by them hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) except as otherwise expressly provided herein, to reimburse the Trustees upon request for all reasonable expenses, disbursements and advances incurred or made by the Trustees in accordance with any provision of this Trust Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to such Trustee's negligence, bad faith or willful misconduct (or, in the case of the Administrative Trustees or the Delaware Trustee, any such expense, disbursement or advance as may be attributable to its, his or her gross negligence, bad faith or willful misconduct); and (c) to indemnify each of the Trustees or any predecessor Trustee for, and to hold the Trustees harmless against, any loss, damage, claims, liability, penalty or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Trust Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder, except any such expense, disbursement or advance as may be attributable to such Trustee's negligence, bad faith or willful misconduct (or, in the case of the Administrative Trustees or the Delaware Trustee, any such expense, disbursement or advance as may be attributable to its, his or her gross negligence, bad faith or willful misconduct). No Trustee may claim any Lien or charge on Trust Property as a result of any amount due pursuant to this Section 806. SECTION 807. CORPORATE PROPERTY TRUSTEE REQUIRED; ELIGIBILITY OF TRUSTEES. (a) There shall at all times be a Property Trustee hereunder with respect to the Trust Securities. The Property Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and 32 38 EXHIBIT 4(c)(2) has a combined capital and surplus of at least $50,000,000. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section 807, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Property Trustee with respect to the Trust Securities shall cease to be eligible in accordance with the provisions of this Section 807, it shall resign immediately in the manner and with the effect hereinafter specified in this Article VIII. (b) There shall at all times be one or more Administrative Trustees hereunder with respect to the Trust Securities. Each Administrative Trustee shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more persons authorized to bind that entity. (c) There shall at all times be a Delaware Trustee with respect to the Trust Securities. The Delaware Trustee shall either be (i) a natural person who is at least 21 years of age and a resident of the State of Delaware; or (ii) a legal entity with its principal place of business in the State of Delaware and that otherwise meets the requirements of applicable Delaware law that shall act through one or more persons authorized to bind such entity. SECTION 808. CONFLICTING INTERESTS. If the Property Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Property Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Trust Agreement. SECTION 809. CO-TRUSTEES AND SEPARATE TRUSTEE. (a) Unless an Event of Default shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust Property may at the time be located, the Depositor shall have power to appoint, and upon the written request of the Property Trustee, the Depositor shall for such purpose join with the Property Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to appoint, one or more Persons approved by the Property Trustee either to act as co-trustee, jointly with the Property Trustee, of all or any part of such Trust Property, or to the extent required by law to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in the capacity aforesaid, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section 809. If the Depositor does not join in such appointment within 15 days after the receipt by it of a request so to do, or in case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make such appointment. Any co-trustee or separate trustee appointed pursuant to this Section 809 shall either be (i) a natural person who is at least 21 years of age and a resident of the United States; or (ii) a legal entity with its principal place of business in the United States that shall act through one or more persons authorized to bind such entity. (b) Should any written instrument from the Depositor be required by any co-trustee or separate trustee so appointed for more fully confirming to such co-trustee or separate trustee such property, title, right, or power, any and all such instruments shall, on request, be executed, acknowledged, and delivered by the Depositor. 33 39 EXHIBIT 4(c)(2) (c) Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms, namely: (i) The Trust Securities shall be executed and delivered and all rights, powers, duties and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Trustees specified hereunder, shall be exercised, solely by such Trustees and not by such co-trustee or separate trustee. (ii) The rights, powers, duties and obligations hereby conferred or imposed upon the Property Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed by the Property Trustee or by the Property Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Property Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by such co-trustee or separate trustee. (iii) The Property Trustee at any time, by an instrument in writing executed by it, with the written concurrence of the Depositor, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section 809, and, in case a Debenture Event of Default has occurred and is continuing, the Property Trustee shall have the power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Depositor. Upon the written request of the Property Trustee, the Depositor shall join with the Property Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to effectuate such resignation or removal. A successor to any co-trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section 809. (iv) No co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Property Trustee or any other trustee hereunder. (v) The Property Trustee shall not be liable by reason of any act of a co-trustee or separate trustee. (vi) Any Act of Holders delivered to the Property Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee. SECTION 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. (a) No resignation or removal of any Trustee (the "Relevant Trustee") and no appointment of a successor Trustee pursuant to this Article VIII shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 811. (b) Subject to the immediately preceding paragraph, the Relevant Trustee may resign at any time with respect to the Trust Securities by giving written notice thereof to the Securityholders. If the instrument of acceptance by the successor Trustee required by Section 811 shall not have been delivered to the Relevant Trustee within 30 days after the giving of such notice of resignation, the Relevant Trustee may petition, at the expense of the Depositor, any court of competent jurisdiction for the appointment of a successor Relevant Trustee with respect to the Trust Securities. 34 40 EXHIBIT 4(c)(2) (c) Unless a Debenture Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by Act of the Common Securityholder. If a Debenture Event of Default shall have occurred and be continuing, the Property Trustee or the Delaware Trustee, or both of them, may be removed at such time by Act of the Holders of a majority in 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 by the Common Securityholder at any time. (d) If any Trustee shall resign, be removed or become incapable of acting as Trustee, or if a vacancy shall occur in the office of any Trustee for any cause, at a time when no Debenture Event of Default shall have occurred and be continuing, the Common Securityholder, by Act of the Common Securityholder delivered to the retiring Trustee, shall promptly appoint a successor Trustee or Trustees with respect to the Trust Securities and the Trust, and the successor Trustee shall comply with the applicable requirements of Section 811. If the Property Trustee or the Delaware Trustee shall resign, be removed or become incapable of continuing to act as the Property Trustee or the Delaware Trustee, as the case may be, at a time when a Debenture Event of Default shall have occurred and is continuing, the 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 with respect to the Trust Securities and the Trust, and such successor Trustee shall comply with the applicable requirements of Section 811. If an Administrative Trustee shall resign, be removed or become incapable of acting as Administrative Trustee, at a time when a Debenture Event of Default shall have occurred and be continuing, the Common Securityholder, by Act of the Common Securityholder delivered to an Administrative Trustee, shall promptly appoint a successor Administrative Trustee or Administrative Trustees with respect to the Trust Securities and the Trust, and such successor Administrative Trustee or Administrative Trustees shall comply with the applicable requirements of Section 811. If no successor Relevant Trustee with respect to the Trust Securities shall have been so appointed by the Common Securityholder or the Preferred Securityholders and accepted appointment in the manner required by Section 811, any Securityholder who has been a Securityholder of Trust Securities on behalf of himself and all others similarly situated may petition a court of competent jurisdiction for the appointment of a successor Relevant Trustee with respect to the Trust Securities. (e) The Property Trustee shall give notice of each resignation and each removal of a Trustee and each appointment of a successor Trustee to all Securityholders in the manner provided in Section 1008 and shall give notice to the Depositor. Each notice shall include the name of the successor Relevant Trustee and the address of its Corporate Trust Office if it is the Property Trustee. (f) Notwithstanding the foregoing or any other provision of this Trust Agreement, in the event any Administrative Trustee or a Delaware Trustee who is a natural person dies or becomes, in the opinion of the Depositor, incompetent or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by (a) the unanimous act of remaining Administrative Trustees if there are at least two of them; or (b) otherwise by the Depositor (with the successor in each case being a Person who satisfies the eligibility requirement for Administrative Trustees set forth in Section 807). SECTION 811. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. (a) In case of the appointment hereunder of a successor Relevant Trustee with respect to the Trust Securities and the Trust, the retiring Relevant Trustee and each successor Relevant Trustee with respect to the Trust Securities shall execute and deliver an instrument hereto wherein each successor Relevant Trustee shall accept such appointment and which shall contain such provisions as shall be necessary or desirable to 35 41 EXHIBIT 4(c)(2) transfer and confirm to, and to vest in, each successor Relevant Trustee all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust and upon the execution and delivery of such instrument the resignation or removal of the retiring Relevant Trustee shall become effective to the extent provided therein and each such successor Relevant Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust; but, on request of the Trust or any successor Relevant Trustee such retiring Relevant Trustee shall duly assign, transfer and deliver to such successor Relevant Trustee all Trust Property, all proceeds thereof and money held by such retiring Relevant Trustee hereunder with respect to the Trust Securities and the Trust. (b) Upon request of any such successor Relevant Trustee, the Trust shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Relevant Trustee all such rights, powers and trusts referred to in the immediately preceding paragraph, as the case may be. (c) No successor Relevant Trustee shall accept its appointment unless at the time of such acceptance such successor Relevant Trustee shall be qualified and eligible under this Article VIII. SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any Person into which the Property Trustee, the Delaware Trustee or any Administrative Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any merger, conversion or consolidation to which such Relevant Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of such Relevant Trustee, shall be the successor of such Relevant Trustee hereunder, provided such Person shall be otherwise qualified and eligible under this Article VIII, without the execution or filing of any paper or any further act on the part of any of the parties hereto. SECTION 813. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR TRUST. If and when the Property Trustee or the Delaware Trustee shall be or become a creditor of the Depositor or the Trust (or any other obligor upon the Debentures or the Trust Securities), the Property Trustee or the Delaware Trustee, as the case may be, shall be subject to and shall take all actions necessary in order to comply with the provisions of the Trust Indenture Act regarding the collection of claims against the Depositor or Trust (or any such other obligor). SECTION 814. REPORTS BY PROPERTY TRUSTEE. (a) Not later than July 15 of each year commencing with July 15, 1997, the Property Trustee shall transmit to all Securityholders in accordance with Section 1008, and to the Depositor, a brief report dated as of such May 15 with respect to: (i) its eligibility under Section 807 or, in lieu thereof, if to the best of its knowledge it has continued to be eligible under said Section, a written statement to such effect; and (ii) any change in the property and funds in its possession as Property Trustee since the date of its last report and any action taken by the Property Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Trust Securities. (b) In addition the Property Trustee shall transmit to Securityholders such reports concerning 36 42 EXHIBIT 4(c)(2) the Property Trustee and its actions under this Trust Agreement as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Property Trustee with The Nasdaq Stock Market's National Market, and each national securities exchange or other organization upon which the Trust Securities are listed, and also with the Commission and the Depositor. SECTION 815. REPORTS TO PROPERTY TRUSTEE. The Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314(a) of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. SECTION 816. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. Each of the Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Trust Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers' Certificate. SECTION 817. NUMBER OF TRUSTEES. (a) The number of Trustees shall be five, provided that the Holder of all of the Common Securities by written instrument may increase or decrease the number of Administrative Trustees. The Property Trustee and the Delaware Trustee may be the same Person. (b) If a Trustee ceases to hold office for any reason and the number of Administrative Trustees is not reduced pursuant to Section 817(a), or if the number of Trustees is increased pursuant to Section 817(a), a vacancy shall occur. The vacancy shall be filled with a Trustee appointed in accordance with Section 810. (c) The death, resignation, retirement, removal, bankruptcy, incompetence or incapacity to perform the duties of a Trustee shall not operate to annul the Trust. Whenever a vacancy in the number of Administrative Trustees shall occur, until such vacancy is filled by the appointment of an Administrative Trustee in accordance with Section 810, the Administrative Trustees in office, regardless of their number (and notwithstanding any other provision of this Agreement), shall have all the powers granted to the Administrative Trustees and shall discharge all the duties imposed upon the Administrative Trustees by this Trust Agreement. SECTION 818. DELEGATION OF POWER. (a) Any Administrative Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 207(a); and 37 43 EXHIBIT 4(c)(2) (b) The Administrative Trustees shall have power to delegate from time to time to such of their number or to the Depositor the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Administrative Trustees or otherwise as the Administrative Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. SECTION 819. VOTING. Except as otherwise provided in this Trust Agreement, the consent or approval of the Administrative Trustees shall require consent or approval by not less than a majority of the Administrative Trustees, unless there are only two, in which case both must consent. ARTICLE IX TERMINATION, LIQUIDATION AND MERGER SECTION 901. TERMINATION UPON EXPIRATION DATE. Unless earlier dissolved, the Trust shall automatically dissolve on March 31, 2052 (the "Expiration Date") subject to distribution of the Trust Property in accordance with Section 904. SECTION 902. EARLY TERMINATION. The first to occur of any of the following events is an "Early Termination Event:" (a) the occurrence of a Bankruptcy Event in respect of, or the dissolution or liquidation of, the Depositor; (b) delivery of written direction to the Property Trustee by the Depositor at any time (which direction is wholly optional and within the discretion of the Depositor) to dissolve the Trust and distribute the Debentures to Securityholders in exchange for the Preferred Securities in accordance with Section 904; (c) the redemption of all of the Preferred Securities in connection with the redemption of all of the Debentures; and (d) the entrance of an order for dissolution of the Trust by a court of competent jurisdiction. SECTION 903. TERMINATION. The respective obligations and responsibilities of the Trustees and the Trust created and continued hereby shall terminate upon the latest to occur of the following: (a) the distribution by the Property Trustee to Securityholders upon the liquidation of the Trust pursuant to Section 904, or upon the redemption of all of the Trust Securities pursuant to Section 402, of all amounts required to be distributed hereunder upon the final payment of the Trust Securities; (b) the payment of any expenses owed by the Trust; (c) the discharge of all administrative duties of the Administrative Trustees, including the performance of any tax reporting obligations with respect to the Trust or the Securityholders; and (d) the filing of a Certificate of Cancellation by the Administrative Trustee under the Delaware Business Trust Act. 38 44 EXHIBIT 4(c)(2) SECTION 904. LIQUIDATION. (a) If an Early Termination Event specified in clause (a), (b), or (d) of Section 902 occurs or upon the Expiration Date, the Trust shall be liquidated by the Trustees as expeditiously as the Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, to each Securityholder a Like Amount of Debentures, subject to Section 904(d). Notice of liquidation shall be given by the Property Trustee by first-class mail, postage prepaid, mailed not later than 30 nor more than 60 days prior to the Liquidation Date to each Holder of Trust Securities at such Holder's address appearing in the Securities Register. All notices of liquidation shall: (i) state the Liquidation Date; (ii) state that from and after the Liquidation Date, the Trust Securities shall no longer be deemed to be Outstanding and any Trust Securities Certificates not surrendered for exchange shall be deemed to represent a Like Amount of Debentures; and (iii) provide such information with respect to the mechanics by which Holders may exchange Trust Securities Certificates for Debentures, or, if Section 904(d) applies, receive a Liquidation Distribution, as the Administrative Trustees or the Property Trustee shall deem appropriate. (b) Except where Section 902(c) or 904(d) applies, in order to effect the liquidation of the Trust and distribution of the Debentures to Securityholders, the Property Trustee shall establish a record date for such distribution (which shall be not more than 45 days prior to the Liquidation Date) and, either itself acting as exchange agent or through the appointment of a separate exchange agent, shall establish such procedures as it shall deem appropriate to effect the distribution of Debentures in exchange for the Outstanding Trust Securities Certificates. (c) Except where Section 902(c) or 904(d) applies, after the Liquidation Date, (i) the Trust Securities shall no longer be deemed to be outstanding; (ii) certificates representing a Like Amount of Debentures shall be issued to holders of Trust Securities Certificates upon surrender of such certificates to the Administrative Trustees or their agent for exchange; (iii) the Depositor shall use its reasonable efforts to have the Debentures listed on The Nasdaq Stock Market's National Market or on such other securities exchange or other organization as the Preferred Securities are then listed or traded; (iv) any Trust Securities Certificates not so surrendered for exchange shall be deemed to represent a Like Amount of Debentures, accruing interest at the rate provided for in the Debentures from the last Distribution Date on which a Distribution was made on such Trust Securities Certificates until such certificates are so surrendered (and until such certificates are so surrendered, no payments of interest or principal shall be made to holders of Trust Securities Certificates with respect to such Debentures); and (v) all rights of Securityholders holding Trust Securities shall cease, except the right of such Securityholders to receive Debentures upon surrender of Trust Securities Certificates. (d) In the event that, notwithstanding the other provisions of this Section 904, whether because of an order for dissolution entered by a court of competent jurisdiction or otherwise, distribution of the Debentures in the manner provided herein is determined by the Property Trustee not to be practical, the Trust Property shall be liquidated, and the Trust shall be dissolved, wound-up or terminated, by the Property Trustee in such manner as the Property Trustee determines. In such event, on the date of the dissolution, winding-up or other termination of the Trust, Securityholders shall be entitled to receive out of the assets of the Trust available for distribution to Securityholders, after satisfaction of liabilities to creditors of the 39 45 EXHIBIT 4(c)(2) Trust as provided by applicable law, an amount equal to the Liquidation Amount per Trust Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). If, upon any such dissolution, winding-up or termination, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then, subject to the next succeeding sentence, the amounts payable by the Trust on the Trust Securities shall be paid on a pro rata basis (based upon Liquidation Amounts). The holder of the Common Securities shall be entitled to receive Liquidation Distributions upon any such dissolution, winding-up or termination pro rata (determined as aforesaid) with Holders of 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 905. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF TRUST. The Trust may not merge with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other Person, except pursuant to this Section 905. At the request of the Depositor, with the consent of the Administrative Trustees and without the consent of the holders of the Preferred Securities, the Property Trustee or the Delaware Trustee, the Trust may merge with or into, consolidate, amalgamate, be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to a trust organized as such under the laws of any State; provided, that (i) such successor entity either (a) expressly assumes all of the obligations of the Trust with respect to the 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 substantially the same powers and duties as the Property Trustee as the holder of the Debentures; (iii) the Successor Securities are listed or traded, or any Successor Securities shall be listed or traded upon notification of issuance, on any national securities exchange or other organization on which the Preferred Securities are then listed, if any; (iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any Successor Securities) in any material respect; (v) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Depositor has received an Opinion of Counsel to the effect that (a) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the 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 shall be required to register as an "investment company" under the Investment Company Act; and (vi) 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 or replacement would cause the Trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. 40 46 EXHIBIT 4(c)(2) ARTICLE X MISCELLANEOUS PROVISIONS SECTION 1001. LIMITATION OF RIGHTS OF SECURITYHOLDERS. The death or incapacity of any Person having an interest, beneficial or otherwise, in Trust Securities shall not operate to terminate this Trust Agreement, nor entitle the legal representatives or heirs of such Person or any Securityholder for such Person to claim an accounting, take any action or bring any proceeding in any court for a partition or winding-up of the arrangements contemplated hereby, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. SECTION 1002. AMENDMENT. (a) This Trust Agreement may be amended from time to time by the Trustees and the Depositor, without the consent of any Securityholders, (i) as provided in Section 811 with respect to acceptance of appointment by a successor Trustee; (ii) to cure any ambiguity, correct or supplement any provision herein or therein which may be inconsistent with any other provision herein or therein, or to make any other provisions with respect to matters or questions arising under this Trust Agreement, that shall not be inconsistent with the other provisions of this Trust Agreement; or (iii) to modify, eliminate or add to any provisions of this Trust Agreement to such extent as shall be necessary to ensure that the Trust shall be classified for United States federal income tax purposes as a grantor trust at all times that any Trust Securities are outstanding or to ensure that the Trust shall not be required to register as an "investment company" under the Investment Company Act; provided, however, that in the case of clause (ii), such action shall not adversely affect in any material respect the interests of any Securityholder, and any amendments of this Trust Agreement shall become effective when notice thereof is given to the Securityholders. (b) Except as provided in Section 601(c) or Section 1002(c) hereof, any provision of this Trust Agreement may be amended by the Trustees and the Depositor (i) with the consent of Trust Securityholders representing not less than a majority (based upon Liquidation Amounts) of the Trust Securities then Outstanding; and (ii) upon receipt by the Trustees of an Opinion of Counsel to the effect that such amendment or the exercise of any power granted to the Trustees in accordance with such amendment shall not affect the Trust's status as a grantor trust for United States federal income tax purposes or the Trust's exemption from status of an "investment company" under the Investment Company Act. (c) In addition to and notwithstanding any other provision in this Trust Agreement, without the consent of each affected Securityholder (such consent being obtained in accordance with Section 603 or 606 hereof), this Trust Agreement may not be amended to (i) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Securities as of a specified date; or (ii) restrict the right of a Securityholder to institute suit for the enforcement of any such payment on or after such date; notwithstanding any other provision herein, without the unanimous consent of the Securityholders (such consent being obtained in accordance with Section 603 or 606 hereof), this paragraph (c) of this Section 1002 may not be amended. (d) Notwithstanding any other provisions of this Trust Agreement, no Trustee shall enter into or consent to any amendment to this Trust Agreement which would cause the Trust to fail or cease to qualify for the exemption from status of an "investment company" under the Investment Company Act or to fail or cease to be classified as a grantor trust for United States federal income tax purposes. 41 47 EXHIBIT 4(c)(2) (e) Notwithstanding anything in this Trust Agreement to the contrary, without the consent of the Depositor, this Trust Agreement may not be amended in a manner which imposes any additional obligation on the Depositor. (f) In the event that any amendment to this Trust Agreement is made, the Administrative Trustees shall promptly provide to the Depositor a copy of such amendment. (g) Neither the Property Trustee nor the Delaware Trustee shall be required to enter into any amendment to this Trust Agreement which affects its own rights, duties or immunities under this Trust Agreement. The Property Trustee shall be entitled to receive an Opinion of Counsel and an Officers' Certificate stating that any amendment to this Trust Agreement is in compliance with this Trust Agreement. SECTION 1003. SEPARABILITY. In case any provision in this Trust Agreement or in the Trust Securities Certificates shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1004. GOVERNING LAW. THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES). SECTION 1005. PAYMENTS DUE ON NON-BUSINESS DAY. If the date fixed for any payment on any Trust Security shall be a day that is not a Business Day, then such payment need not be made on such date but may be made on the next succeeding day which is a Business Day, with the same force and effect as though made on the date fixed for such payment, and no distribution shall accumulate thereon for the period after such date. SECTION 1006. SUCCESSORS. This Trust Agreement shall be binding upon and shall inure to the benefit of any successor to the Depositor, the Trust or the Relevant Trustee(s), including any successor by operation of law. Except in connection with a consolidation, merger or sale involving the Depositor that is permitted under Article XII of the Indenture and pursuant to which the assignee agrees in writing to perform the Depositor's obligations hereunder, the Depositor shall not assign its obligations hereunder. SECTION 1007. HEADINGS. The Article and Section headings are for convenience only and shall not affect the construction of this Trust Agreement. 42 48 EXHIBIT 4(c)(2) SECTION 1008. REPORTS, NOTICES AND DEMANDS. (a) 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, (i) 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 (ii) in the case of the Common Securityholder or the Depositor, to 1st Source Corporation, 100 North Michigan Street, South Bend, Indiana 46601, Attention: Chief Financial Officer, facsimile no.: (219) 235-2414. Any notice to Preferred Securityholders shall also be given to such owners as have, within two years preceding the giving of such notice, filed their names and addresses with the Property Trustee for that purpose. Such notice, demand or other communication to or upon a Securityholder shall be deemed to have been sufficiently given or made, for all purposes, upon hand delivery, mailing or transmission. (b) Any notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon the Trust, the Property Trustee or the Administrative Trustees shall be given in writing addressed (until another address is published by the Trust) as follows: (i) with respect to the Property Trustee to State Street Bank and Trust Company, Two International Place, 4th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Department; (ii) with respect to the Delaware Trustee, to Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration; and (iii) with respect to the Administrative Trustees, to them at the address above for notices to the Depositor, marked "Attention: Administrative Trustees of 1st Source Capital Trust II, c/o Chief Financial Officer, 1st Source Corporation." Such notice, demand or other communication to or upon the Trust or the Property Trustee shall be deemed to have been sufficiently given or made only upon actual receipt of the writing by the Trust or the Property Trustee. SECTION 1009. AGREEMENT NOT TO PETITION. Each of the Trustees and the Depositor agree for the benefit of the Securityholders that, until at least one year and 1 day after the Trust has been terminated in accordance with Article IX, they shall not file, or join in the filing of, a petition against the Trust under any bankruptcy, insolvency, reorganization or other similar law (including, without limitation, the United States Bankruptcy Code of 1978, as amended) (collectively, "Bankruptcy Laws") or otherwise join in the commencement of any proceeding against the Trust under any Bankruptcy Law. In the event the Depositor takes action in violation of this Section 1009, the Property Trustee agrees, for the benefit of Securityholders, that at the expense of the Depositor (which expense shall be paid prior to the filing), it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such petition by the Depositor 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. The provisions of this Section 1009 shall survive the termination of this Trust Agreement. SECTION 1010. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT. (a) This Trust Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Trust Agreement and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee which is a trustee for the purposes of the 43 49 EXHIBIT 4(c)(2) Trust Indenture Act. (c) If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Trust Agreement by any of the provisions of the Trust Indenture Act, such required provision shall control. If any provision of this Trust Agreement modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Trust Agreement as so modified or to be excluded, as the case may be. (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. [Remainder of page intentionally left blank.] SECTION 1011. ACCEPTANCE OF TERMS OF TRUST AGREEMENT, GUARANTEE AND INDENTURE. THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS. 1ST SOURCE CORPORATION as Depositor By: /s/ Christopher J. Murphy III --------------------------------------------- Name: Christopher J. Murphy III Title: President and Chief Executive Officer STATE STREET BANK AND TRUST COMPANY, as Property Trustee By: /s/ Paul D. Allen ---------------------------------------------- Name: Paul D. Allen Title: Vice President 44 50 EXHIBIT 4(c)(2) WILMINGTON TRUST COMPANY, as Delaware Trustee By: /s/ W. Chris Sponenberg ---------------------------------------------- Name: W. Chris Sponenberg Title: Senior Financial Services Officer /s/ Christopher J. Murphy III ------------------------------------------------- Christopher J. Murphy III, as Administrative Trustee /s/ Wellington D. Jones III ------------------------------------------------- Wellington D. Jones III, as Administrative Trustee /s/ Larry E. Lentych ------------------------------------------------- Larry E. Lentych, as Administrative Trustee 45 51 EXHIBIT 4(c)(2) EXHIBIT A CERTIFICATE OF TRUST OF 1ST SOURCE CAPITAL TRUST II THIS CERTIFICATE OF TRUST OF 1ST SOURCE CAPITAL TRUST II (the "Trust"), dated as of February 27, 1997, is being duly executed and filed by WILMINGTON TRUST COMPANY, a Delaware banking corporation, Christopher J. Murphy III, Wellington D. Jones III and Larry E. Lentych, each an individual, as trustees, to form a business trust under the Delaware Business Trust Act (12 Del. C. Section 3801 et seq.). 1. NAME. The name of the business trust formed hereby is 1st Source Capital Trust II. 2. DELAWARE TRUSTEE. The name and business address of the trustee of the Trust in the State of Delaware is Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration. 3. EFFECTIVE DATE. This Certificate of Trust shall be effective on February 27, 1997. IN WITNESS WHEREOF, the undersigned, being the sole trustees of the Trust, have executed this Certificate of Trust as of the date first above written. WILMINGTON TRUST COMPANY, as trustee By:----------------------------------------- Name:--------------------------------------- Title:-------------------------------------- -------------------------------------------- Christopher J. Murphy III as Trustee -------------------------------------------- Wellington D. Jones III as Trustee -------------------------------------------- Larry E. Lentych as Trustee A-1 52 EXHIBIT 4(c)(2) EXHIBIT B [Intentionally Omitted] B-1 53 EXHIBIT 4(c)(2) EXHIBIT C THIS CERTIFICATE IS NOT TRANSFERABLE CERTIFICATE NUMBER 1 NUMBER OF COMMON SECURITIES: ------- CERTIFICATE EVIDENCING COMMON SECURITIES OF 1ST SOURCE CAPITAL TRUST II COMMON SECURITIES (LIQUIDATION AMOUNT $25.00 PER COMMON SECURITY) 1ST SOURCE CAPITAL TRUST II, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that 1st Source Corporation (the "Holder") is the registered owner of - ------------------------------------------- (-------) common securities of the Trust representing undivided beneficial interests in the assets of the Trust and designated the Floating Rate Common Securities (liquidation amount $25.00 per Common Security). In accordance with Section 510 of the Trust Agreement (as defined below), the Common Securities are not transferable and any attempted transfer hereof shall be void. The designations, rights, privileges, restrictions, preferences, and other terms and provisions of the Common Securities are set forth in, and this certificate and the Common Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Trust Agreement of the Trust dated as of March --, 1997, as the same may be amended from time to time (the "Trust Agreement"), including the designation of the terms of the Common Securities as set forth therein. The Trust shall furnish a copy of the Trust Agreement to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receive of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder. IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has executed this certificate this ---- day of March --, 1997. 1ST SOURCE CAPITAL TRUST II By ---------------------------------------- Name: Larry E. Lentych Title: Administrative Trustee C-1 54 EXHIBIT 4(c)(2) EXHIBIT D AGREEMENT AS TO EXPENSES AND LIABILITIES AGREEMENT AS TO EXPENSES AND LIABILITIES (this "Agreement") dated as of March 21, 1997, between 1ST SOURCE CORPORATION, an Indiana corporation ("the Company"), and 1ST SOURCE CAPITAL TRUST II, a Delaware business trust (the "Trust"). RECITALS WHEREAS, the Trust intends to issue its common securities (the "Common Securities") to, and receive Debentures from, the Company and to issue and sell up to 690,000 Floating Rate Cumulative Trust Preferred Securities (the "Preferred Securities") with such powers, preferences and special rights and restrictions as are set forth in the Amended and Restated Trust Agreement of the Trust dated as of March 21, 1997, as the same may be amended from time to time (the "Trust Agreement"); WHEREAS, the Company shall directly or indirectly own all of the Common Securities of the Trust and shall issue the Debentures; NOW, THEREFORE, in consideration of the purchase by each holder of the Preferred Securities, which purchase the Company hereby agrees shall benefit the Company and which purchase the Company acknowledges shall be made in reliance upon the execution and delivery of this Agreement, the Company, including in its capacity as holder of the Common Securities, and the Trust hereby agree as follows: ARTICLE I SECTION 1.1. GUARANTEE BY THE COMPANY. Subject to the terms and conditions hereof, the Company, including in its capacity as holder of the Common Securities, hereby irrevocably and unconditionally guarantees to each person or entity to whom the Trust is now or hereafter becomes indebted or liable (the "Beneficiaries") the full payment, when and as due, of any and all Obligations (as hereinafter defined) to such Beneficiaries. As used herein, "Obligations" means any costs, expenses or liabilities of the Trust other than obligations of the Trust to pay to holders of any 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. This Agreement is intended to be for the benefit of, and to be enforceable by, all such Beneficiaries, whether or not such Beneficiaries have received notice hereof. SECTION 1.2. TERM OF AGREEMENT. This Agreement shall terminate and be of no further force and effect upon the later of (a) the date on which full payment has been made of all amounts payable to all holders of all the Preferred Securities (whether upon redemption, liquidation, exchange or otherwise); and (b) the date on which there are no Beneficiaries remaining; provided, however, that this Agreement shall continue to be effective or shall be reinstated, as the case may be, if at any time any holder of Preferred Securities or any Beneficiary must restore payment of any sums paid under the Preferred Securities, under any obligation under the Preferred Securities Guarantee Agreement dated the date hereof by the Company and State Street Bank and Trust Company, as guarantee trustee, or under this Agreement for any reason whatsoever. This Agreement is D-1 55 EXHIBIT 4(c)(2) continuing, irrevocable, unconditional and absolute. SECTION 1.3. WAIVER OF NOTICE. The Company hereby waives notice of acceptance of this Agreement and of any obligation to which it applies or may apply, and the Company hereby waives presentment, demand for payment, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 1.4. NO IMPAIRMENT. The obligations, covenants, agreements and duties of the Company under this Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the extension of time for the payment by the Trust of all or any portion of the obligations or for the performance of any other obligation under, arising out of, or in connection with, the Obligations; (b) any failure, omission, delay or lack of diligence on the part of the Beneficiaries to enforce, assert or exercise any right, privilege, power or remedy conferred on the Beneficiaries with respect to the Obligations or any action on the part of the Trust granting indulgence or extension of any kind; or (c) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust. There shall be no obligation of the Beneficiaries to give notice to, or obtain the consent of, the Company with respect to the happening of any of the foregoing. SECTION 1.5. ENFORCEMENT. A Beneficiary may enforce this Agreement directly against the Company, and the Company waives any right or remedy to require that any action be brought against the Trust or any other person or entity before proceeding against the Company. ARTICLE II SECTION 2.1. BINDING EFFECT. All guarantees and agreements contained in this Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Company and shall inure to the benefit of the Beneficiaries. SECTION 2.2. AMENDMENT. So long as there remains any Beneficiary or any Preferred Securities are outstanding, this Agreement shall not be modified or amended in any manner adverse to such Beneficiary or to the holders of the Preferred Securities. D-2 56 EXHIBIT 4(c)(2) SECTION 2.3. NOTICES. Any notice, request or other communication required or permitted to be given hereunder shall be given in writing by delivering the same by facsimile transmission (confirmed by mail), telex, or by registered or certified mail, addressed as follows (and if so given, shall be deemed given when mailed or upon receipt of an answer back, if sent by telex): 1st Source Capital Trust II c/o 1st Source Corporation 100 North Michigan Street South Bend, Indiana 46601 Facsimile No.: (219) 235-2414 Attention: Chief Financial Officer 1st Source Corporation 100 North Michigan Street South Bend, Indiana 46601 Facsimile No.: (219) 235-2414 Attention: Chief Financial Officer SECTION 2.4. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Indiana (without regard to conflict of laws principles). THIS AGREEMENT is executed as of the day and year first above written. 1ST SOURCE CORPORATION By:-------------------------------------------- Name: Christopher J. Murphy III Title: President and Chief Executive Officer 1ST SOURCE CAPITAL TRUST II By:-------------------------------------------- Name: Larry E. Lentych Title: Administrative Trustee D-3 57 EXHIBIT 4(c)(2) EXHIBIT E Certificate Number Number of Preferred Securities -------- P- Certificate Evidencing Preferred Securities of 1st Source Capital Trust II Floating Rate Cumulative Trust Preferred Securities (Liquidation Amount $25 per Preferred Security) CUSIP NO. 33645X 20 8 1st Source Capital Trust II, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that - ---------------- (the "Holder") is the registered owner of ----- preferred securities (the "Preferred Securities") of the Trust representing undivided beneficial interests in the assets of the Trust and designated the Floating Rate Cumulative Trust Preferred Securities (Liquidation Amount $25 per Preferred Security). 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 504 of the Trust Agreement (as defined herein). 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 March, 1997, 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 Floating Rate Preferred Securities Guarantee Agreement entered into by 1st Source Corporation, an Indiana corporation, and State Street Bank and Trust Company, as guarantee trustee, dated as of March, 1997 (the "Guarantee"), to the extent provided therein. The Trust shall 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. Unless the Certificate of Authentication has been manually executed by the Authentication Agent, this Certificate is not valid or effective. IN WITNESS WHEREOF, the Administrative Trustees of the Trust have executed this Certificate as of the date hereof. E-1 58 EXHIBIT 4(c)(2) Dated: CERTIFICATE OF AUTHENTICATION This is one of the Floating Rate Cumulative Trust Preferred Securities referred to in the within- mentioned Amended and Restated Trust Agreement. STATE STREET BANK & TRUST COMPANY, as Authentication Agent and Registrar By------------------------------------- Authorized Signature 1ST SOURCE CAPITAL TRUST II By------------------------------------- Christopher J. Murphy III Trustee By------------------------------------- Wellington D. Jones III Trustee By------------------------------------- Larry E. Lentych Trustee E-2 59 EXHIBIT 4(c)(2) [FORM ON REVERSE OF CERTIFICATE] The Trust will furnish without charge to any registered owner of Preferred Securities who so requests, a copy of the Trust Agreement and the Guarantee. Any such request should be in writing and addressed to 1st Source Capital Trust II, c/o 1st Source Corporation, 100 North Michigan Street, South Bend, Indiana 46601 or to the Registrar named on the face of this Certificate. The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM - as tenants in common UNIF GIFT MIN ACT -.....Custodian..... TEN ENT - as tenants by the entireties (Cust) (Minor) JT TEN - as joint tenants with right of under Uniform Gifts to Minors survivorship and not as tenants Act in common (State) TOD - transfer on death direction in event of owner's death, UNIF TRF MIN ACT - ..Custodian (until age).. to person named on face and subject to TOD rules (Cust) referenced ....under Uniform Transfers (Minor) to Minors Act. (State)
Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED, ------------------- hereby sell, assign and transfer unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------- - -------------------------------------- - ------------------------------------------------------------------------------ (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ - ----------------------------------------------------------Preferred Securities represented by the within Certificate, and do hereby irrevocably constitute and appoint - ----------------------------------------------------------------------Attorney to transfer the said Preferred Securities on the books of the within named Trust with full power of substitution in the premises. Dated,--------------------------------- --------------------------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERNATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. SIGNATURE(S) GUARANTEED: - ------------------------------------------------------------------------------ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED MEDALLION SIGNATURE GUARANTEE PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. E-3 EX-4.(C)(3) 7 FORM OF FLOATING RATE PREFERRED SECURITIES GUARANTEE AGREE 1 EXHIBIT 4(c)(3) =============================================================================== FLOATING RATE PREFERRED SECURITIES GUARANTEE AGREEMENT BY AND BETWEEN 1ST SOURCE CORPORATION AND STATE STREET BANK AND TRUST COMPANY MARCH 21, 1997 =============================================================================== 2 EXHIBIT 4(c)(3) TABLE OF CONTENTS
Page No. ARTICLE I DEFINITIONS AND INTERPRETATION 1 Section 1.1. Definitions and Interpretation 1 ARTICLE II TRUST INDENTURE ACT 4 Section 2.1. Trust Indenture Act; Application 4 Section 2.2. Lists of Holders of Securities 4 Section 2.3. Reports by Preferred Guarantee Trustee 5 Section 2.4. Periodic Reports to Preferred Guarantee Trustee 5 Section 2.5. Evidence of Compliance with Conditions Precedent 5 Section 2.6. Events of Default; Waiver 5 Section 2.7. Event of Default; Notice 5 Section 2.8. Conflicting Interests 6 ARTICLE III POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE 6 Section 3.1. Powers and Duties of Preferred Guarantee Trustee 6 Section 3.2. Certain Rights of Preferred Guarantee Trustee 7 Section 3.3. Not Responsible for Recitals or Issuance of Guarantee 9 ARTICLE IV PREFERRED GUARANTEE TRUSTEE 9 Section 4.1. Preferred Guarantee Trustee; Eligibility 9 Section 4.2. Appointment, Removal and Resignation of Preferred Guarantee Trustees 9 ARTICLE V GUARANTEE 10 Section 5.1. Guarantee 10 Section 5.2. Waiver of Notice and Demand 10 Section 5.3. Obligations not Affected 11 Section 5.4. Rights of Holders 12 Section 5.5. Guarantee of Payment. 12 Section 5.6. Subrogation. 12 Section 5.7. Independent Obligations 12 ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION 12 Section 6.1. Limitation of Transactions 12 Section 6.2 Ranking 13 ARTICLE VII TERMINATION 13 Section 7.1. Termination 13 ARTICLE VIII INDEMNIFICATION 13 Section 8.1. Exculpation 13 Section 8.2. Indemnification 14 i 3 EXHIBIT 4(c)(3) ARTICLE IX MISCELLANEOUS 14 Section 9.1. Successors and Assigns 14 Section 9.2. Amendments 14 Section 9.3. Notices 14 Section 9.4. Benefit 15 Section 9.5. Governing Law 15
ii 4 EXHIBIT 4(c)(3) CROSS REFERENCE TABLE
Section of Trust Section of Indenture Act of Guarantee 1939, as amended Agreement ---------------- --------- 310(a) 4.1(a) 310(b) 4.1(c), 2.8 310(c) Not Applicable 311(a) 2.2(b) 311(b) 2.2(b) 311(c) Not Applicable 312(a) 2.2(a) 312(b) 2.2(b) 313 2.3 314(a) 2.4 314(b) Not Applicable 314(c) 2.5 314(d) Not Applicable 314(e) 1.1, 2.5, 3.2 314(f) 2.1, 3.2 315(a) 3.1(d) 315(b) 2.7 315(c) 3.1 315(d) 3.1(d) 316(a) 1.1, 2.6, 5.4 316(b) 5.3 317(a) 3.1 317(b) Not Applicable 318(a) 2.1(a) 318(b) 2.1 318(c) 2.1(b) Note: This Cross-Reference Table does not constitute part of this Agreement and shall not affect the interpretation of any of its terms or provisions.
iii 5 EXHIBIT 4(c)(3) FLOATING RATE PREFERRED SECURITIES GUARANTEE AGREEMENT THIS FLOATING RATE PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Preferred Securities Guarantee"), dated as of March 21, 1997 is executed and delivered by 1ST SOURCE CORPORATION, an Indiana corporation (the "Guarantor"), and STATE STREET BANK AND TRUST COMPANY, a trust company organized and existing under the laws of the Commonwealth of Massachusetts, as trustee (the "Preferred Guarantee Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Preferred Securities (as defined herein) of 1st Source Capital Trust II, a Delaware statutory business trust (the "Trust"). RECITALS WHEREAS, pursuant to an Amended and Restated Trust Agreement (the "Trust Agreement"), dated as of March 21, 1997, among the trustees of the Trust named therein, the Guarantor, as depositor, and the holders from time to time of undivided beneficial interests in the assets of the Trust, the Trust is issuing on the date hereof up to 690,000 preferred securities, having an aggregate liquidation amount of up to $17,250,000, designated the Floating Rate Cumulative Trust Preferred Securities (the "Preferred Securities"); WHEREAS, as an incentive for the Holders to purchase the Preferred Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Preferred Securities Guarantee, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Preferred Securities Guarantee for the benefit of the Holders. ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.1. DEFINITIONS AND INTERPRETATION. In this Preferred Securities Guarantee, unless the context otherwise requires: (a) capitalized terms used in this Preferred Securities Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) terms defined in the Trust Agreement as at the date of execution of this Preferred Securities Guarantee have the same meaning when used in this Preferred Securities Guarantee; (c) a term defined anywhere in this Preferred Securities Guarantee has the same meaning throughout; (d) all references to "the Preferred Securities Guarantee" or "this Preferred Securities Guarantee" are to this Preferred Securities Guarantee as modified, supplemented or amended from time to time; (e) all references in this Preferred Securities Guarantee to Articles and Sections are to Articles and Sections of this Preferred Securities Guarantee, unless otherwise specified; (f) a term defined in the Trust Indenture Act has the same meaning when used in this Preferred Securities Guarantee, unless otherwise defined in this Preferred Securities Guarantee or unless the context otherwise requires; and 6 EXHIBIT 4(c)(3) (g) a reference to the singular includes the plural and vice versa. "Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act of 1933, as amended, or any successor rule thereunder. "Business Day" means any day other than a day on which federal or state banking institutions in New York, New York are authorized or required by law, executive order or regulation to close or a day on which the Corporate Trust Office of the Preferred Guarantee Trustee is closed for business. "Corporate Trust Office" means the office of the Preferred Guarantee Trustee at which the corporate trust business of the Preferred Guarantee Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Preferred Securities Guarantee is located at Two International Place, 4th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Department. "Covered Person" means any Holder or beneficial owner of Preferred Securities. "Debentures" means the Floating Rate Subordinated Debentures due March 31, 2027, of the Debenture Issuer held by the Property Trustee of the Trust. "Debenture Issuer" means the Guarantor. "Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Preferred Securities Guarantee. "Guarantor" means 1st Source Corporation, an Indiana corporation. "Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by the Trust: (i) any accrued and unpaid Distributions that are required to be paid on such Preferred Securities, to the extent the Trust shall have funds available therefor, (ii) the redemption price, including all accrued and unpaid Distributions to the date of redemption (the "Redemption Price"), to the extent the Trust has funds available therefor, with respect to any Preferred Securities called for redemption by the Trust, and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of the Trust (other than in connection with the distribution of Debentures to the Holders in exchange for Preferred Securities as provided in the Trust Agreement), the lesser of (a) the aggregate of the Liquidation Amount and all accrued and unpaid Distributions on the Preferred Securities to the date of payment, to the extent the Trust shall have funds available therefor (the "Liquidation Distribution"), and (b) the amount of assets of the Trust remaining available for distribution to Holders in liquidation of the Trust. "Holder" shall mean any holder, as registered on the books and records of the Trust, of any Preferred Securities; provided, however, that, in determining whether the holders of the requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor. "Indemnified Person" means the Preferred Guarantee Trustee, any Affiliate of the Preferred Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Preferred Guarantee Trustee. "Indenture" means the Indenture dated as of March 21, 1997 among the Debenture Issuer and State Street Bank and Trust Company, as trustee, and any indenture supplemental thereto pursuant to which certain subordinated debt securities of the Debenture Issuer are to be issued to the Property Trustee of the Trust. "Liquidation Distribution" has the meaning provided therefor in the definition of Guarantee Payments. 2 7 EXHIBIT 4(c)(3) "List of Holders" has the meaning set forth in Section 2.2 of this Preferred Securities Guarantee. "Majority in liquidation amount of the Preferred Securities" means the holders of more than 50% of the Liquidation Amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all of the Preferred Securities. "Officers' Certificate" means, with respect to any Person, a certificate signed by two authorized officers of such Person. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Preferred Securities Guarantee shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definition relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Preferred Guarantee Trustee" means State Street Bank and Trust Company, until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Preferred Securities Guarantee and thereafter means each such Successor Preferred Guarantee Trustee. "Redemption Price" has the meaning provided therefor in the definition of Guarantee Payments. "Responsible Officer" means, with respect to the Preferred Guarantee Trustee, any officer within the Corporate Trust Office of the Preferred Guarantee Trustee, including any vice-president, any assistant vice-president, any assistant secretary, the treasurer, any assistant treasurer or other officer of the Corporate Trust Office of the Preferred 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 Preferred Guarantee Trustee" means a successor Preferred Guarantee Trustee possessing the qualifications to act as Preferred Guarantee Trustee under Section 4.1. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939, as amended, is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. 3 8 EXHIBIT 4(c)(3) ARTICLE II TRUST INDENTURE ACT SECTION 2.1. TRUST INDENTURE ACT; APPLICATION. (a) This Preferred Securities Guarantee is subject to the provisions of the Trust Indenture Act that are required to be part of this Preferred Securities Guarantee and shall, to the extent applicable, be governed by such provisions. (b) If and to the extent that any provision of this Preferred Securities Guarantee limits, qualifies or conflicts with the duties imposed by Section 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. SECTION 2.2. LISTS OF HOLDERS OF SECURITIES. (a) In the event the Preferred Guarantee Trustee is not also the Securities Registrar, the Guarantor shall provide the Preferred Guarantee Trustee with a list, in such form as the Preferred Guarantee Trustee may reasonably require, of the names and addresses of the Holders of the Preferred Securities (the "List of Holders") as of such date, (i) within 1 Business Day after January 1 and June 30 of each year, and (ii) at any other time within 30 days of receipt by the Guarantor of a written request for a List of Holders as of a date no more than 15 days before such List of Holders is given to the Preferred Guarantee Trustee; provided, that the Guarantor shall not be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Preferred Guarantee Trustee by the Guarantor. The Preferred Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Preferred Guarantee Trustee shall comply with its obligations under Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act. SECTION 2.3. REPORTS BY PREFERRED GUARANTEE TRUSTEE. On or before July 15 of each year, the Preferred Guarantee Trustee shall provide to the Holders of the Preferred Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Preferred Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.4. PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE. The Guarantor shall provide to the Preferred Guarantee Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. SECTION 2.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. The Guarantor shall provide to the Preferred Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Preferred Securities Guarantee that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate. SECTION 2.6. EVENTS OF DEFAULT; WAIVER. The Holders of a Majority in liquidation amount of Preferred Securities may, by vote, on behalf of 4 9 EXHIBIT 4(c)(3) the Holders of all of the Preferred Securities, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Preferred Securities Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 2.7. EVENT OF DEFAULT; NOTICE. (a) The Preferred Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Preferred Securities, notices of all Events of Default actually known to a Responsible Officer of the Preferred Guarantee Trustee, unless such defaults have been cured before the giving of such notice; provided, that the Preferred Guarantee Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Preferred Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Preferred Securities. (b) The Preferred Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless the Preferred Guarantee Trustee shall have received written notice, or of which a Responsible Officer of the Preferred Guarantee Trustee charged with the administration of the Trust Agreement shall have obtained actual knowledge. SECTION 2.8. CONFLICTING INTERESTS. The Trust Agreement shall be deemed to be specifically described in this Preferred Securities Guarantee 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 PREFERRED GUARANTEE TRUSTEE SECTION 3.1. POWERS AND DUTIES OF PREFERRED GUARANTEE TRUSTEE. (a) This Preferred Securities Guarantee shall be held by the Preferred Guarantee Trustee for the benefit of the Holders of the Preferred Securities, and the Preferred Guarantee Trustee shall not transfer this Preferred Securities Guarantee to any Person except a Holder of Preferred Securities exercising his or her rights pursuant to Section 5.4(b) or to a Successor Preferred Guarantee Trustee on acceptance by such Successor Preferred Guarantee Trustee of its appointment to act as Successor Preferred Guarantee Trustee. The right, title and interest of the Preferred Guarantee Trustee shall automatically vest in any Successor Preferred Guarantee Trustee, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Preferred Guarantee Trustee. (b) If an Event of Default actually known to a Responsible Officer of the Preferred Guarantee Trustee has occurred and is continuing, the Preferred Guarantee Trustee shall enforce this Preferred Securities Guarantee for the benefit of the Holders of the Preferred Securities. (c) The Preferred 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 Preferred Securities Guarantee, and no implied covenants shall be read into this Preferred Securities Guarantee against the Preferred Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) and is actually known to a Responsible Officer of the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall exercise such of the rights and powers vested in it by this Preferred Securities Guarantee, and use the same degree of care and skill in 5 10 EXHIBIT 4(c)(3) 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 Preferred Securities Guarantee shall be construed to relieve the Preferred 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 Preferred Guarantee Trustee shall be determined solely by the express provisions of this Preferred Securities Guarantee, and the Preferred Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Preferred Securities Guarantee, and no implied covenants or obligations shall be read into this Preferred Securities Guarantee against the Preferred Guarantee Trustee; and (B) in the absence of bad faith on the part of the Preferred Guarantee Trustee, the Preferred 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 Preferred Guarantee Trustee and conforming to the requirements of this Preferred Securities Guarantee; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Preferred Securities Guarantee; (ii) the Preferred Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Preferred Guarantee Trustee, unless it shall be proved that the Preferred Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Preferred Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Preferred Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Preferred Guarantee Trustee, or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Preferred Securities Guarantee; and (iv) no provision of this Preferred Securities Guarantee shall require the Preferred 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 Preferred 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 Preferred Securities Guarantee or indemnity, reasonably satisfactory to the Preferred Guarantee Trustee, against such risk or liability is not reasonably assured to it. SECTION 3.2. CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE. (a) Subject to the provisions of Section 3.1: (i) the Preferred 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 believed by it to be genuine and to have been signed, sent or presented by the proper party or parties; 6 11 EXHIBIT 4(c)(3) (ii) any direction or act of the Guarantor contemplated by this Preferred Securities Guarantee shall be sufficiently evidenced by an Officers' Certificate; (iii) whenever, in the administration of this Preferred Securities Guarantee, the Preferred Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Preferred Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor; (iv) the Preferred Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any rerecording, refiling or registration thereof); (v) the Preferred Guarantee Trustee may consult with counsel, and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Preferred Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Preferred Securities Guarantee from any court of competent jurisdiction; (vi) the Preferred Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Preferred Securities Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Preferred Guarantee Trustee such security and indemnity, reasonably satisfactory to the Preferred Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses and the expenses of the Preferred Guarantee Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Preferred Guarantee Trustee; provided that, nothing contained in this Section 3.2(a)(vi) shall be taken to relieve the Preferred Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Preferred Securities Guarantee; (vii) the Preferred 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 Preferred Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (viii) the Preferred Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Preferred Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (ix) any action taken by the Preferred Guarantee Trustee or its agents hereunder shall bind the Holders of the Preferred Securities, and the signature of the Preferred Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Preferred Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Preferred Securities Guarantee, both of which shall be conclusively evidenced by the Preferred Guarantee Trustee's or its agent's taking such action; (x) whenever in the administration of this Preferred Securities Guarantee the Preferred Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Preferred Guarantee Trustee (i) may request instructions from the Holders of a Majority in liquidation amount of the Preferred Securities, (ii) may refrain from enforcing 7 12 EXHIBIT 4(c)(3) such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in conclusively relying on or acting in accordance with such instructions. (b) No provision of this Preferred Securities Guarantee shall be deemed to impose any duty or obligation on the Preferred 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 Preferred 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 Preferred Guarantee Trustee shall be construed to be a duty. SECTION 3.3. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE. The Recitals contained in this Guarantee shall be taken as the statements of the Guarantor, and the Preferred Guarantee Trustee does not assume any responsibility for their correctness. The Preferred Guarantee Trustee makes no representation as to the validity or sufficiency of this Preferred Securities Guarantee. ARTICLE IV PREFERRED GUARANTEE TRUSTEE SECTION 4.1. PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY. (a) There shall at all times be a Preferred Guarantee Trustee which shall: (i) not be an Affiliate of the Guarantor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Securities and Exchange Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then, for the purposes of this Section 4.1(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Preferred Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c). (c) If the Preferred Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 4.2. APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE TRUSTEE. (a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor. (b) The Preferred Guarantee Trustee shall not be removed in accordance with Section 4.2(a) until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor. 8 13 EXHIBIT 4(c)(3) (c) The Preferred Guarantee Trustee appointed to office shall hold office until a Successor Preferred Guarantee Trustee shall have been appointed or until its removal or resignation. The Preferred Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Preferred Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor and the resigning Preferred Guarantee Trustee. (d) If no Successor Preferred 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 Preferred Guarantee Trustee may petition any court of competent jurisdiction for appointment of a Successor Preferred Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Preferred Guarantee Trustee. (e) No Preferred Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Preferred Guarantee Trustee. (f) Upon termination of this Preferred Securities Guarantee or removal or resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2, the Guarantor shall pay to the Preferred Guarantee Trustee all amounts accrued to the date of such termination, removal or resignation. ARTICLE V GUARANTEE SECTION 5.1. GUARANTEE. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Trust), as and when due, regardless of any defense, right of set-off or counterclaim that the Trust may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Trust to pay such amounts to the Holders. SECTION 5.2. WAIVER OF NOTICE AND DEMAND. The Guarantor hereby waives notice of acceptance of this Preferred Securities Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Trust or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 5.3. OBLIGATIONS NOT AFFECTED. The obligations, covenants, agreements and duties of the Guarantor under this Preferred Securities Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Trust of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Trust; (b) the extension of time for the payment by the Trust of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in 9 14 EXHIBIT 4(c)(3) connection with, the Preferred Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures or any extension of the maturity date of the Debentures permitted by the Indenture); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Trust granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust; (e) any invalidity of, or defect or deficiency in, the Preferred Securities; (f) any failure or omission to receive any regulatory approval or consent required in connection with the Preferred Securities (or the common equity securities issued by the Trust), including the failure to receive any approval of the Board of Governors of the Federal Reserve System required for the redemption of the Preferred Securities; (g) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (h) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 5.4. RIGHTS OF HOLDERS. (a) The Holders of a Majority in liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting of any proceeding for any remedy available to the Preferred Guarantee Trustee in respect of this Preferred Securities Guarantee or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Preferred Securities Guarantee. (b) Any Holder of Preferred Securities may institute a legal proceeding directly against the Guarantor to enforce its rights under this Preferred Securities Guarantee, without first instituting a legal proceeding against the Trust, the Preferred Guarantee Trustee or any other Person. SECTION 5.5. GUARANTEE OF PAYMENT. This Preferred Securities Guarantee creates a guarantee of payment and not of collection. SECTION 5.6. SUBROGATION. The Guarantor shall be subrogated to all (if any) rights of the Holders of Preferred Securities against the Trust in respect of any amounts paid to such Holders by the Guarantor under this Preferred Securities Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Preferred Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Preferred Securities Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding 10 15 EXHIBIT 4(c)(3) 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 Trust with respect to the Preferred Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Preferred Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (h), inclusive, of Section 5.3 hereof. ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.1. LIMITATION ON TRANSACTIONS. So long as any Preferred Securities remain outstanding, if there shall have occurred an Event of Default under this Preferred Securities Guarantee, an Event of Default under the Trust Agreement or during an Extended Interest Payment Period (as defined in the Indenture), then (a) the Guarantor shall not declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock (other than (i) dividends or distributions in common stock of the Guarantor or any declaration of a non-cash dividend in connection with the implementation of a shareholders' rights plan, or the issuance of stock under any such plan in the future, or the redemption or repurchase of any such rights pursuant thereto, and (ii) purchases of common stock of the Guarantor related to the rights under any of the Guarantor's benefit plans for its directors, officers or employees), (b) the Guarantor shall not make any payment of principal or interest on or repay, repurchase or redeem any debt securities issued by the Guarantor which rank pari passu with or junior to the Debentures and (c) the Guarantor shall not redeem, purchase or acquire less than all of the Outstanding Debentures or any of the Preferred Securities. SECTION 6.2 RANKING. This Preferred Securities Guarantee will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor, (ii) pari passu with the most senior preferred securities or preference stock now or hereafter issued by the Guarantor and with any guarantee now or hereafter entered into by the Guarantor in respect of any preferred securities or preference stock of any Affiliate of the Guarantor, and (iii) senior to the Guarantor's common stock. ARTICLE VII TERMINATION SECTION 7.1. TERMINATION. This Preferred Securities Guarantee shall terminate upon (i) full payment of the Redemption Price of all Preferred Securities, (ii) upon full payment of the amounts payable in accordance with the Trust Agreement upon liquidation of the Trust, or (iii) upon distribution of the Debentures to the Holders of the Preferred Securities. Notwithstanding the foregoing, this Preferred Securities Guarantee shall continue to be effective or shall be reinstated, as the case may be, if at any time any Holder of Preferred Securities must restore payment of any sums paid under the Preferred Securities or under this Preferred Securities Guarantee. 11 16 EXHIBIT 4(c)(3) ARTICLE VIII INDEMNIFICATION SECTION 8.1. EXCULPATION. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Preferred Securities Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Preferred Securities Guarantee or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Preferred Securities might properly be paid. SECTION 8.2. INDEMNIFICATION. The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against, or investigating, any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The obligation to indemnify as set forth in this Section 8.2 shall survive the termination of this Preferred Securities Guarantee. ARTICLE IX MISCELLANEOUS SECTION 9.1. SUCCESSORS AND ASSIGNS. All guarantees and agreements contained in this Preferred Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Preferred Securities then outstanding. SECTION 9.2. AMENDMENTS. Except with respect to any changes that do not materially adversely affect the rights of Holders (in which case no consent of Holders will be required), this Preferred Securities Guarantee may only be amended with the prior approval of the Holders of at least a Majority in liquidation amount of the Preferred Securities. The provisions of Article VI of the Trust Agreement with respect to meetings of Holders of the Preferred Securities apply to the giving of such approval. SECTION 9.3. NOTICES. All notices provided for in this Preferred Securities Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail, as 12 17 EXHIBIT 4(c)(3) follows: (a) If given to the Preferred Guarantee Trustee, at the Preferred Guarantee Trustee's mailing address set forth below (or such other address as the Preferred Guarantee Trustee may give notice of to the Holders of the Preferred Securities): State Street Bank and Trust Company Two International Place, 4th Floor Boston, Massachusetts 02110 Attention: Corporate Trust Department (b) If given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Preferred Securities): 1st Source Corporation 100 North Michigan Street South Bend, Indiana 46601 Attention: Chief Financial Officer (c) If given to any Holder of Preferred Securities, at the address set forth on the books and records of the Trust. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 9.4. BENEFIT. This Preferred Securities Guarantee is solely for the benefit of the Holders of the Preferred Securities and, subject to Section 3.1(a), is not separately transferable from the Preferred Securities. SECTION 9.5. GOVERNING LAW. THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF INDIANA. [Remainder of page intentionally left blank] 13 18 EXHIBIT 4(c)(3) This Preferred Securities Guarantee is executed as of the day and year first above written. 1ST SOURCE CORPORATION as Guarantor By: /s/ Christopher J. Murphy ------------------------------------------------ Christopher J. Murphy President and Chief Executive Officer STATE STREET BANK AND TRUST COMPANY, as Preferred Guarantee Trustee By: /s/ Paul D. Allen ------------------------------------------------ Paul D. Allen Vice President 14 EX-10.(A) 8 EMPLOYMENT AGREEMENT 1 EXHIBIT 10(a) EMPLOYMENT AGREEMENT Amended as of 2/1/97 -------------------- THIS AGREEMENT, dated as of January 1, 1992, by and between CHRISTOPHER J. MURPHY III, hereinafter referred to as "Executive', and 1st SOURCE CORPORATION, an Indiana corporation, hereinafter referred to as "Employer,' WITNESSETH; That WHEREAS, Executive is currently employed as the President of Employer and Employer's subsidiary, 1st Source Bank, hereinafter referred to as "Bank,' pursuant to the terms of an Employment Agreement between Employer and Executive dated as of March 1, 1988, hereinafter referred to as the "Prior Agreement'; and WHEREAS, Employer desires to assure the continued service of Executive, and Executive is willing to provide such service on the terms and conditions specified herein. NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements contained in this Agreement, Employer and Executive hereby agree as follows: 1. Employment Position. The parties agree that the employment of ------------------- Executive by Employer shall continue for the term referred to in Section 2. Employer agrees to continue the employment of Executive in a senior officer position with a title of not less than President of either Employer or Bank, or both of them, and agrees that Executive will serve as a director of both Employer and Bank. Executive shall devote his full time during business hours to the performance of his duties hereunder and shall at all times use his best effort to promote the best interests of Employer. Executive shall report to the Chairman of the Board of Employer, or the Board of Directors of Employer, or such person or persons as shall be designated by either the Board of Directors or the Executive Committee of Employer, from time to time and consistent with the position of Executive. The assignments of Executive initially shall include: (a) full management responsibility for all operating divisions of Employer and its subsidiaries; (b) such additional and specific duties as may be reasonably assigned to Executive by either the Board of Directors or Executive Committee of Employer. Employer also agrees to provide to Executive during the term of this Agreement an adequate staff, together with such facilities and secretarial support consistent with a senior employment position to permit the performance by Executive of the duties assigned to him. 2 EXHIBIT 10(a) For the purpose of this Agreement, the Board of Directors of Employer is sometimes referred to herein as "Board.' 2. Term. The term of this Agreement shall be from the date hereof ---- until December 31, 1997, unless terminated sooner in accordance with section 5 or section 6 hereof, provided, however, that the term shall be automatically extended for an additional year on January 1, 1993, and on January 1 of each year thereafter, unless either party hereto gives written notice of an intention not to extend this Agreement on or before September 30 of the preceding year, in which case no further automatic extension shall occur and the term of this Agreement shall end on December 31, five (5) years subsequent to the date of the last automatic extension. 3. Compensation and Benefits. ------------------------- (a) Base Salary. Executive shall be paid a base salary of not less ----------- than Three Hundred Thousand Dollars ($300,000) and with ($20,000) of such base paid on January 1 of each calendar year, with increases thereafter each year as may be determined by Employer, but not less than five percent (5%) in excess of the base salary paid during the previous year. (b) Incentive Compensation. In addition to amounts paid to Executive ---------------------- as salary and for other benefits, Executive will participate on a "phantom' basis in the Company's Executive Incentive Plan at a minimum "partnership' rate of 15% of base salary. All amounts awarded will be received and earned as if awarded under the plan except that Executive will receive cash compensation in lieu of stock. (c) Benefit Plans. During the term of this agreement, Executive shall ------------- be entitled to participate, at a level commensurate with his position, in all benefit plans Employer presently has or hereafter adopts for its officers or employees, including (without limitation) pension, profit sharing, or any group life or health insurance, hospitalization or other similar plans, any eligibility or waiting periods to be waived to the extent feasible. In plans where stock is awarded and Executive is not permitted to receive such stock; cash or its equivalent will be paid to Executive. (d) Stock Option. As of January 1, 1992, and on each of the next four ------------ anniversary dates, Employee is granted an option to purchase 10,000 shares of company stock at a price of $29.75 per share, or an aggregate of 50,000 optioned shares. The options may be exercised at any time up to ten years following the date of grant. 3 EXHIBIT 10(a) (e) Life Insurance. Company will purchase $1 million ($1,000.000.00) -------------- of life insurance for the benefit of Executive, his family or estate as he may direct. (f) Death Benefit. If Executive should die during the term of this ------------- Agreement, the Corporation shall pay to his estate or such other beneficiary that the Executive may designate in writing an additional death benefit equal to three (3) times the base salary and bonus paid to Executive in the preceding year. (g) Additional Benefits. Executive shall be entitled to receive four ------------------- (4) weeks vacation each year without reduction of compensation during the term of this Agreement. A club membership will be provided by Employer for Executive to at least one country club and to one club in downtown South Bend, Indiana, with the initiation fees, monthly fee and appropriate business related expenses paid by Employer. One automobile shall be provided by Employer to Executive on a full lease basis consistent with the title and position of Executive. 4. Disability. In the event that this Agreement is terminated by ---------- reason of Executive's Disability, Executive will continue to receive his base salary for up to one year from the date of the termination and shall also participate in any other disability compensation programs, including any Salary Continuance Plan in effect at that time for officers or executives of Employer. For purposes of this Agreement, "Disability' means Executive's inability by reason of illness or other physical or mental impairment to perform the duties required by his employment for any consecutive one hundred eighty (180) day period, provided that written notice of any termination for Disability shall have been given by Employer to Executive prior to the full resumption by him of the performance of such duties. 5. Termination by Employer; Death or Disability. -------------------------------------------- (a) With Cause. In the event the Board determines that Executive is ---------- guilty of gross dereliction of duty or of fraud or dishonesty in connection with the performance of his duties under this Agreement, the Board may terminate this Agreement such termination to be effective thirty (30) days after the Board gives written notice to Executive setting forth with specificity the reason or cause for terminating the Agreement. In such event, the compensation and other benefits provided for in this Agreement shall terminate on the date specified by the Board in the written notice of termination delivered to Executive. 4 EXHIBIT 10(a) (b) Without Cause. If Employer shall discharge Executive from his ------------- employment hereunder for any reason other than one set forth in section 5(a), or if it shall be determined by a court of competent jurisdiction that the discharge under section 5(a) was not justified, or if Employer violates the provisions of this Agreement in a material manner, Executive shall have the right to terminate his obligations and duties hereunder, but the rights of Executive to receive the compensation provided for in Section 3 shall continue nevertheless to be fully in effect for the remaining term of this Agreement in the same manner as would have been payable absent such termination. Notwithstanding the foregoing Employer shall have the right at any time after the termination contemplated by this section 5(b) to pay Executive in a lump sum the then present value of the amount payable to Executive discounted at the then current savings rate for the Bank under this section 5(b). (c) Death or Disability. This Agreement shall terminate in the event ------------------- of the death or Disability of Executive. In such event, Executive, his estate or designee shall be entitled to the death or Disability benefits provided in sections 3(e) and 4 of this Agreement. 6. Termination By Executive. Executive may, at any time upon ------------------------ written notice to Employer, immediately terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason' shall mean any adverse change in Executive's status or position as President of Employer or Bank or as a director of either including, without limitation, as a result of a material diminution of his duties or responsibilities or the assignment to him of duties or responsibilities which, in his reasonable judgment, are inconsistent with such status or positions, or any removal of Executive from, or any failure to reappoint or reelect him to, any such position (except in connection with the termination of his employment pursuant to section 5(a) or 5(c) or by him for other than Good Reason), or any attempt to require Executive to relocate outside of the metropolitan area of his current residence. (a) If such termination does not follow a Change of Control of Employer or Bank, Executive shall continue to receive his Base Salary as then in effect for a period of twelve (12) months after the effective date of such termination, in the same manner as such Base Salary would have become payable pursuant to this Agreement absent such termination. (b) If such termination occurs within one (1) year after a Change of Control of Employer or Bank, as severance pay and in lieu of any further compensation for periods subsequent to the effective date of such termination, Executive shall receive an amount in cash equal to 2.99 times his "annualized includable compensation for the base period' (as defined in Section 28OG(d)(1) of the Internal Revenue Code of 1986, as amended (the "Code')). (c) Each of the events specified in the following clauses (i) through (iii) of this section 6(c) shall be deemed a "Change in Control': (i) any third person, including a "group' as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, shall become the beneficial owner of 20% or more of the then outstanding shares of common stock of Employer or Bank or 5 EXHIBIT 10(a) the combined voting power of the then outstanding voting securities of Employer or Bank entitled to vote for the election of the Board of Directors of Employer or Bank (ii) as a result of, or in connection with, any cash tender offer, exchange offer, merger or other business combination, sale of assets or contested election, or combination of the foregoing, the persons who were directors of Employer or Bank shall cease to constitute a majority of such Board of Directors or (iii) the shareholders of Employer shall approve an agreement providing a sale or other disposition of all or substantially all the assets of Employer. 7. Assignment. This Agreement is a personal contract, and the ---------- rights and interest of Executive hereunder may not be sold, transferred, assigned, pledged or hypothecated. Except as otherwise may be herein expressly provided, this Agreement shall inure to the benefit of and be binding upon Employer and its successors and assigns. 8. Amendment. This Agreement may be amended only by a written --------- instrument signed by the parties hereto after approval by either the Board or Executive Committee of Employer. 9. Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of Indiana. 10. Fees and Expenses. If a dispute arises regarding the ----------------- interpretation or enforcement of this Agreement and Executive obtains a final judgment in his favor in a court of competent jurisdiction or his claim is settled by Employer prior to the rendering of a judgment by such a court, all reasonable legal fees and expenses incurred by Executive in seeking to obtain or enforce any right or benefit provided for in this Agreement or otherwise pursuing his claim shall be paid by Employer, to the fullest extent permitted by law. 11. Miscellaneous. No provision of this Agreement may be modified, ------------- waived or discharged unless such waiver, modification or discharge is agreed to in a writing signed by the parties hereto. No waiver by any party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Except for the award of stock options made under the Prior Agreements which remain in effect, this Agreement supersedes the Prior Agreement in its entirety. 12. Restrictive Covenants. In order to induce Employer to enter into --------------------- this Agreement, Executive hereby agrees as follows: (a) While Executive is employed by Employer and for a period of twelve (12) months after the effective date of termination of such employment for reasons other than those set forth in section 5(b) of this Agreement, Executive shall not divulge or furnish any trade secrets (as defined in IND. CODE Sec. 24-2-3-2) of Employer or any confidential information acquired by him while employed by Employer concerning the policies, plans, procedures or customers of Employer to any person, firm or corporation, 6 EXHIBIT 10(a) other than Employer or with its prior written consent, or use any such trade secret or confidential information directly or indirectly for Executive's own benefit or for the benefit of any person, firm or corporation other than Employer, as such trade secrets and confidential information are confidential and shall at all times remain the property of Employer. (b) For a period of twelve (12) months after the effective date of termination of Executive's employment hereunder for reasons other than those set forth in section 5(b) of this Agreement, Executive shall not, directly or indirectly, provide banking or bank-related services to, or solicit the banking or bank-related business of, any customer of Employer at the time of such provision of services or solicitation which Employee served either alone or with others while employed by Employer within St. Joseph, Elkhart, Marshall or LaPorte Counties in the State of Indiana, or assist any actual or potential competitor of Employer to provide banking or bank-related services to, or solicit the banking or bank-related business of, any such customer in any such area, and Executive shall not, directly or indirectly, as principal, agent, or trustee, or through the agency of any corporation, partnership, trade association, agent or agency, engage in any banking or bank-related business or venture which competes with the business of Employer as conducted during Executive's employment by Employer within such area; provided, however, that Executive may own not -------- ------- more than five percent of the voting securities of any entity providing banking or bank-related services within such area if the voting securities of such entity are traded on a national securities exchange or quoted on a national interdealer quotation system. (c) Executive acknowledges that any violation of this section 12 would cause irreparable harm to Employer, that damages for such harm would be incapable of precise measurement and that, accordingly, Employer would not have an adequate remedy at law to redress the harm caused by such violation. Therefore, Executive agrees that, in addition to any other remedy, Employer shall be entitled to immediate (i.e., without prior notice) preliminary and final injunctive relief to enjoin and restrain any violation of this section 12. If Executive's employment is terminated during the Term of this Agreement for reasons set forth in section 5(b) of this Agreement, Executive shall have no obligations to Employer with respect to trade secrets, confidential information or noncompetition under this section 12. 13. Tax Matters. Anything in this Agreement to the contrary ----------- notwithstanding, in the event that Employer's independent public accountants determine that any payment by Employer to or for the benefit of Executive, whether paid or payable pursuant to the terms of this Agreement, would constitute an "excess parachute payment' within the meaning of Section 28OG of the Code, then such amount payable or any other amount payable to or for the benefit of Executive pursuant to this Agreement shall be reduced (but not below zero) to an amount 7 EXHIBIT 10(a) which maximizes the amount payable to or for the benefit of Executive without causing the payment to be non-deductible by Employer because of Section 28OG of the Code. 14. No Duty to Mitigate. Executive is not required to mitigate the ------------------- amount of salary or benefits payable pursuant to this Agreement upon termination of his employment by seeking other employment or otherwise, nor shall any amount provided to be paid by Employer pursuant to this Agreement upon termination of Executive's employment be reduced by any compensation earned by Employee as a result of employment by another employer that is not in violation of Executive's obligations under section 12. 15. Severability. The invalidity or unenforceability of any ------------ provisions of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which shall remain in full force and effect. 16. Counterparts. This Agreement may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first written above. /s/ CHRISTOPHER J. MURPHY, III ---------------------------------- Christopher J. Murphy, III 1st SOURCE CORPORATION, an Indiana corporation By /s/ ERNESTINE M. RACLIN ---------------------------------- Ernestine M. Raclin, Chairman 8 EXHIBIT 10(a) Attest: /s/ VINCENT A. TAMBURO - --------------------------------- Vincent A. Tamburo Its ------------------------------ Secretary (Corporate Seal) Ratified by the Board of Directors of Employer as of April 21, 1992. ---------------- /s/ VINCENT A. TAMBURO ---------------------------------------- Vincent A. Tamburo Secretary 9 EXHIBIT 10(a) AMENDMENT TO EMPLOYMENT AGREEMENT THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment') is made as of the 1st day of March , 1997, between 1st SOURCE CORPORATION ("Employer') - --- ----------- and CHRISTOPHER J. MURPHY, III ("Executive'). RECITALS -------- 1. Employer and Executive have entered into an Employment Agreement dated as of January 1, 1992 ("Agreement'). 2. Employer and Executive desire to amend the Agreement as provided below. AGREEMENT --------- In consideration of the premises and the following undertakings, Employer and Executive agree as follows: 1. Effective February 1, 1997, Section 13 is amended to read as follows: 13. CERTAIN ADDITIONAL PAYMENTS BY EMPLOYER. --------------------------------------- (a) In the event that Section 28OG of the Code is determined to apply to the payments to be made by Employer to Executive under this Agreement or other compensation or benefit programs, and in the event of any excise tax ("Excise Tax") that may be imposed by Section 4999 of the Code become payable by Executive because of any of the payments made to Executive under this Agreement or otherwise, the Employer will pay to Executive an additional amount ("Gross-up Payment') at least 60 days prior to the due date for payment of the Excise Tax. The Gross-up Payment shall be in an amount such that, after payment by Executive of all taxes (including, without limitation, all income and employment tax and Excise Tax and treating as a tax the disallowance of any deduction of Executive by virtue of the inclusion of the Gross-up Payment in Executive's adjusted gross income) and interest and penalties with respect to such taxes imposed upon the Gross-up Payment, Executive retains an amount equal to the Excise Tax. Employer shall notify Executive of its determination of the amount of payments under this Agreement subject to the Excise Tax (which determination shall be made by an accounting firm selected by Employer) and shall provide Executive with a receipt for the Excise Tax paid. Executive shall report the amount indicated in Employer's notice as the amount subject to the Excise Tax on Executive's Federal income tax return. (b) If, for any reason, the Internal Revenue Service or any other taxing authority proposes an adjustment to the amount of Excise Tax due with respect to any payments or with respect to any additional amounts received by Executive pursuant to this Agreement, Executive will notify Employer immediately of such proposed adjustment and shall give Employer the right to contest such 10 EXHIBIT 10(a) proposed adjustment on Executive's behalf; provided, however, that Executive may pay such claim if Employer does not take any action prior to the time such payment is due. Employer shall bear and pay directly all costs related to or associated with any contest, regardless of outcome, and shall have complete control over such contest as it relates to the Excise Tax, including whether such contest shall be by way of non-payment of the Excise Tax, payment of the Excise Tax under protest, or payment of the Excise Tax accompanied by a claim for a refund. Employer shall pay to Executive (i) an amount equal to the Excise Tax required to be paid to the Internal Revenue Service by Executive as a result of the outcome of any contest, any penalties or interest thereon, and (ii) a Gross-up Payment computed in the same manner and subject to the same adjustments as other Gross-up Payments previously described. Payment by Employer of an amount equal to the Excise Tax and Gross-up Payment shall be made to Executive in advance of the due date for payment of Excise Taxes. (c) In the event that the amount of any additional payments made pursuant to this Section 13 exceeds the amount determined to have been due, the excess additional amounts made shall constitute a loan by Employer to Executive payable within 30 days after receipt by Executive of the refund from the Internal Revenue Service together with any interest received. 2. Effective February 1, 1997, a new section 17 is added to read as follows: 17. RESOLUTION OF DISPUTES. ---------------------- Employer agrees to pay promptly as incurred, to the full extent permitted by law, all legal fees and expenses which Executive may reasonably incur as a result of any contest, regardless of outcome, by Employer, Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance (including as a result of any contest by Executive concerning the amount of any payment pursuant to this Agreement). All terms and conditions of the Agreement, except those expressly amended by this Amendment, shall remain in full force and effect. 1st SOURCE CORPORATION Signed by Directive of Philip J. Faccenda, By: /s/ LARRY E. LENTYCH Chairman of the Executive Compensation ------------------------------- Committee Larry E. Lentych Printed Name: Larry E. Lentych -------------------- Title: CFO --------------------------- /s/ CHRISTOPHER J. MURPHY, III ---------------------------------- Christopher J. Murphy III EX-10.(D) 9 EMPLOYEE STOCK PURCHASE PLAN 1 Exhibit 10(d) 1ST SOURCE CORPORATION Effective as of 4/17/97 EMPLOYEE STOCK PURCHASE PLAN 1. PURPOSE. This Employee Stock Purchase Plan (the "Plan") of 1st Source Corporation (the "Corporation") is designed to encourage employee purchases of shares of the Corporation's Common Stock by offering to eligible employees the right to purchase such shares. The Plan is intended to apply to the Corporation and to such subsidiaries of the Corporation as the Plan Administrative Committee may from time to time designate (including subsidiaries which become such subsequent to the effective date of the Plan); provided, however, that the Plan shall only apply to such subsidiaries of the Corporation as are defined in Section 425(f) of the Internal Revenue Code of 1986, as amended. The Corporation intends that the Plan shall qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as amended, and the Plan shall be construed in a manner consistent with the requirements of said Section 423. 2. ADMINISTRATION. The Plan shall be administered by a committee appointed by the Board of Directors of the Corporation (the "Committee"). The Committee shall consist of not less than three (3) members of the Corporation's Board of Directors. The Board of Directors may from time to time remove members from, or add members to, the Committee. Vacancies on the Committee, howsoever caused, shall be filled by the Board of Directors. No member of the Committee shall be eligible to participate in the Plan. Subject to the express provisions of the Plan and such instructions and limitations as the Board of Directors of the Corporation may establish from time to time, the Committee shall be authorized to develop guidelines regarding the Plan; to publish, amend, and rescind rules and regulations relating to the Plan; to administer and interpret the Plan as may be required from time to time; and to take all other actions and make all other determinations necessary for the administration of the Plan. Decisions of the Committee shall be made by a majority of its members and shall be final, conclusive and binding upon all participants in the Plan. Any decision reduced to writing and signed by a majority of the members of the Committee shall be fully effective as if it had been made at a meeting of the Committee duly held. The Corporation will pay all expenses incurred in the administration of the Plan. Subject to the approval of the Board of Directors of the Corporation, the Committee shall have the right to suspend, discontinue or cancel the Plan, on either a temporary or permanent basis, as the Committee may from time to time deem appropriate and for such reasons as the Committee in its sole judgment may deem appropriate; provided, however, the Committee may not suspend, discontinue or cancel the Plan during an offering period with respect to purchase rights then outstanding. No provision of the Plan shall be deemed to grant to any employee or his legal representatives or assigns any right to participate in the Plan except as expressly set forth herein or as provided in such interpretations or decisions as the Committee may from time to time issue in accordance with the provisions of the Plan. 2 Exhibit 10(d) No member of the Board of Directors or the Committee shall be liable for any action or determination with respect to the Plan or any option granted under it which does not involve recklessness or willful misconduct. 3. STOCK SUBJECT TO PLAN AND ADJUSTMENT. Shares offered hereunder (hereinafter referred to as "Common Stock") may be authorized but unissued Common Stock of the Corporation or previously issued Common Stock acquired by the Corporation and held in its treasury. Not more than two hundred thousand (200,000) shares of the Common Stock of the Corporation (as said amount may be adjusted in accordance with Paragraph 9 hereof) shall be sold in the aggregate hereunder. Shares not actually purchased under an offering may be offered again in a subsequent offering. 4. OFFERINGS. Purchase rights shall be granted under the Plan in one or more offerings, as the Committee may determine, but the maximum number of shares of Common Stock which shall be subject to purchase rights hereunder during any offering period shall be sixty-five thousand (65,000) shares (as said amount may be adjusted in accordance with Paragraph 9 hereof). The terms of each offering shall specify the number of shares of Common Stock which may be subject to purchase rights thereunder, and, subject to Paragraph 6, each offering shall bear a uniform relationship to the basic rate of pay of the eligible employees on the effective date of the offering. ("Basic rate of pay" shall mean either the salary of an employee or such employee's hourly, weekly, or other periodic rate of pay on an annualized basis including vacation, holiday and sick pay, but excluding overtime, shift differentials, commissions, bonuses, deferred compensation, and fringe benefits.) Purchase rights shall be granted solely to eligible employees, and shall expire at the close of the offering period (as hereinafter defined). No offering of Common Stock under the Plan may be made prior to June 1, 1997. The effective date of an offering shall be the date determined by the Committee and specified in the communication of the offering by the Corporation. Purchase rights shall be granted to all eligible employees of the Corporation or of a subsidiary of the Corporation whose employees are granted any of such rights in an offering, and (subject to this Paragraph and Paragraph 6 hereof) all employees granted rights shall have the same rights and privileges under the offering; provided, however, that under rules prescribed by the Committee, no employee will be granted a purchase right: (a) if immediately after the right is granted, the employee owns (as defined in Sections 423 and 425(d) of the Internal Revenue Code of 1986, as amended) stock, and/or holds outstanding purchase rights to purchase stock, possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Corporation or of any subsidiary of the Corporation; or, 3 Exhibit 10(d) (b) the grant of any purchase right permits the employee's rights to purchase stock under this Plan and under all other employee stock purchase plans, if any, of the Corporation or its subsidiaries, to accrue at a rate which exceeds Twenty-Five Thousand Dollars ($25,000.00) of fair market value of such stock (determined at the time such purchase right is granted) for each calendar year in which such purchase right is outstanding at any time; or (c) if at any time the grant of such purchase right is prohibited by applicable law or will cause the Plan not to qualify under Section 423 of the Internal Revenue Code of 1986, as amended. 5. ELIGIBLE EMPLOYEES. An eligible employee is an employee who, on the effective date of an offering, has been an employee of the Corporation or one of the Corporation's subsidiaries (designated by the Committee on the effective date of such offering as a participating subsidiary) for at least two years preceding the effective date of such offering; whose customary employment is twenty (20) hours or more per week; and whose customary employment is for five (5) months or more in any calendar year. 6. PROVISIONS OF OFFERINGS. The provisions and related conditions of each offering hereunder shall be determined by the Committee, subject to the provisions of the Plan and the following requirements: (a) The Committee shall fix the purchase price of the shares to be offered so that such price per share shall equal one hundred percent (100%) of the fair market value of a share of the Corporation's Common Stock on the effective date of the offering. The purchase price so fixed shall be the purchase price per share to be paid by a participant for all shares purchased by the participant during the offering period. The "fair market value" of the Corporation's Common Stock shall be determined by the Committee under any reasonable valuation method permitted under the applicable provisions of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder. (b) The "offering period" shall be that period of time fixed by the Committee, but not to exceed twenty-seven (27) months following the effective date of the offering. (c) The "entry period" shall be that period of time commencing not earlier than ninety (90) days prior to the effective date of the offering during which appropriate participation and payroll deduction forms shall be distributed to eligible employees along with such other documents as may be required, and during which such eligible employees shall have the right to elect to participate in the Plan by completing, signing, and returning such forms to the Committee not later than the close of business on the last business day prior to the effective date of the offering. Participation and payroll deduction forms not received by the Committee prior to the close of business day prior to the effective date of the offering shall not be accepted for participation in the offering made by the Corporation. (d) The "payroll deduction period" shall be that period within which electing participants shall make, through payroll deductions, the required payments for the 4 Exhibit 10(d) shares of the Corporation's Common Stock which said participants have elected to purchase. The payroll deduction period shall commence on or after the effective date of an offering, shall terminate not later than the expiration of the offering period, and shall be fixed for each offering by the Committee. (e) Each participant shall indicate on the Plan participation and/or payroll deduction forms the amount which said participant desires to be withheld from his compensation during the offering period and applied to the purchase of shares of the Corporation's Common Stock; provided, however, the total amount to be withheld and applied during an offering period for any individual participant may not exceed twenty-five percent (25%) of such participant's annual basic rate of pay determined as of the effective date of the offering by the Committee. (f) A participant shall be granted the right to purchase a fixed number of whole shares of Common Stock of the Corporation, which fixed number shall be determined by the Committee as of the effective date of the offering by dividing the total amount expected to be credited to such participant's payroll deduction account (as defined in subparagraph 6(g) hereof) (including payroll deductions and accrued interest thereon), based upon his actual rate of participation as indicated on his participation and payroll deduction forms, by the purchase price per share as determined by the Committee under subparagraph 6(a) hereof. (g) The participant, in his participation and/or payroll deduction forms, shall authorize the Corporation or the participating subsidiary, as the case may be, to withhold from his compensation, throughout the offering period, the amount which said participant indicated he desired to be withheld and applied to the purchase of shares of the Common Stock of the Corporation (in accordance with subparagraph 6(e) hereof). The participant, in his participation and/or payroll deduction forms, shall direct the Corporation or the participating subsidiary, as the case may be, to deposit such withheld amounts in a savings account (herein referred to as a "payroll deduction account") to be opened for the employee with 1st Source Bank, South Bend, Indiana, or any successor bank to that institution (hereinafter called the "Bank") pursuant to directions set forth in said participation and/or payroll deduction forms. The employee shall further agree in the participation and/or payroll forms that he shall only withdraw and be paid the funds so accumulated in said payroll deduction forms. If required by local law or regulation, payroll deduction accounts may be opened at foreign branches of the Bank, or at other banks approved by the Corporation; such payroll deduction accounts shall be maintained and bear interest in accordance with local practice. 7. TERMINATION AND EXERCISE OF PURCHASE RIGHTS. A participant may elect by written notice furnished to the Committee at least thirty (30) days prior to the expiration of an offering period: (a) To cancel his participation and receive all payroll deductions and accrued interest in said participant's payroll deduction account as soon as practicable following such notice or as soon as practicable following expiration of the offering period, as he 5 Exhibit 10(d) may elect. Upon receipt of a notice of cancellation by the Committee, the participant's purchase rights shall immediately lapse, and no further payroll deduction shall be made from his pay during the offering period. Partial withdrawals of payroll deductions may not be made. (b) To discontinue further payroll deductions and have the balance in his payroll deduction account applied as of the expiration of the offering period to the purchase of the maximum number of whole shares of Common Stock as may then be purchased, subject to the applicable limitations under subparagraph 6(f) hereof, in which event his purchase rights shall be permitted to lapse to the extent consistent with his election. (c) To elect to purchase on the last business day of the month following the date of his written notice under this Paragraph 7, all or fewer than all of the shares of which said participant is entitled to purchase under the offering as provided in subparagraph 6(f) hereof. Payment for said shares of Common Stock so purchased shall be made by the application of the balance of said participant's payroll deduction, account plus the payment of cash or certified check, if necessary. Said payment shall be delivered to the Committee or a representative thereof on the last business day of the month following said participant's written notice. As soon as practicable following the participant's purchase of shares in accordance with this subparagraph 7(c), the balance in said participant's payroll deduction account, if any, shall be paid to said participant. Unless a participant gives timely, written notice as provided under this Paragraph 7 or unless the employment of said participant is terminated prior to the expiration of an offering period, said participant's purchase rights shall be exercised as of the expiration of the offering period for the purchase of that number of whole shares of Common Stock which can be purchased with the balance in his payroll deduction account. As soon as practicable after a participant's purchase of shares under this Paragraph 7, the Committee shall cause certificates for the number of shares of the Corporation's Common Stock purchased hereunder to be issued to said participant, or the estate, personal representative or beneficiaries of a deceased participant, as fully paid and non-assessable shares, and shall refund any unused balance remaining in such participant's payroll deduction account. 8. TERMINATION OF EMPLOYMENT. (a) In the event that the employment by the Corporation or a participating subsidiary of an employee who was a participant under the Plan shall terminate other than by reason of said participant's death prior to the expiration of an offering period and prior to said participant making an election under Paragraph 7 hereof, said participant shall have the right within thirty (30) days from the date of said termination (unless the expiration of the offering period shall first occur, in which event such right may be exercised only on or prior to the expiration of said offering period) to elect to purchase, by written notice to the Committee, all or fewer than all of the shares said participant is entitled to purchase under the offering as provided in subparagraph 6(f) hereof. Payment for said shares of Common Stock shall be made by the application of the balance of said participant's payroll deduction account plus 6 Exhibit 10(d) the payment of cash or certified check, if necessary. Said payment shall be delivered to the Committee or a representative thereof on the date of said participant's written notice of election under this subparagraph 8(a). As soon as practicable following the payment for shares under this subparagraph 8(a), the balance in said participant's payroll deduction account, if any, shall be paid to said participant. (b) In the event that the employment by the Corporation or a participating subsidiary of an employee who is a participant under the Plan shall terminate prior to the expiration of an offering period by reason of such employee's death, his estate, personal representative, or beneficiary shall have the right, at any time within ninety (90) days from the date of his death (unless the expiration of the offering period shall first occur, in which event such right may be exercised only on or prior to the expiration of the offering period), to elect by written notice delivered to the Committee to purchase all or fewer than all of the shares of the Common Stock which said deceased participant was entitled to purchase under the offering as provided in subparagraph 6(f) hereof. Payment for said shares of Common Stock shall be made by the application of the balance of said participant's payroll deduction account plus the payment of cash or certified check, if necessary. Said payment shall be delivered to the Committee or a representative thereof on the date of the written notice given under this subparagraph 8(b). As soon as practicable following the payment for shares under this subparagraph 8(b), the balance in said deceased participant's payroll deduction account, if any, shall be paid to said estate, personal representative or beneficiary. (c) In the event that the employment by the Corporation or a participating subsidiary of an employee who was a participant under the Plan shall terminate for any reason, including death, and, said participant or the estate, personal representative or beneficiary of said participant shall not make an election by written notice in accordance with the provisions of subparagraphs 8(a) or 8(b) hereof, then, such participant's purchase rights shall, with respect to such offering period, automatically lapse, and the Committee shall cause the balance of such participant's payroll deduction account to be paid to him or to his estate, personal representative or beneficiary as soon as practicable. (d) As soon as practicable after a participant or a participant's estate, personal representative or beneficiary's purchase of shares under this Paragraph, the Committee shall cause certificates for the number of shares of the Corporation's Common Stock purchased hereunder to be issued to said participant or said participant's estate, personal representative or beneficiaries fully paid and non-assessable shares. 9. ADJUSTMENTS IN CAPITAL STRUCTURE. In the event that the outstanding shares of the Common Stock of the Corporation shall be increased or decreased or changed into or exchanged for a different number or kind of shares of stock or other securities, whether through reorganization, recapitalization, stock split-up, combination of shares, stock dividend, merger, consolidation or any other change in corporate structure affecting the Common Stock of the Corporation, appropriate adjustments shall be made by the Committee in the number and kind of shares or other securities 7 Exhibit 10(d) available for purchase hereunder and subject to any purchase rights then outstanding, and/or the purchase price thereof. Any determination by the Committee of any adjustment to be made in any contingency under this Paragraph, along with such other action as the Committee shall deem appropriate under the circumstances, shall be final. 10. MERGER OR LIQUIDATION. In the event of a dissolution or liquidation of the Corporation, or a merger or consolidation in which the Corporation is not the surviving corporation, the Plan shall terminate upon the date of approval of such dissolution, liquidation, merger or consolidation by the Corporation's shareholders. Unless a participant elects to exercise his/her purchase rights as provided in Paragraph 7 at any time prior to the date of approval by the shareholders of any dissolution, liquidation, merger or consolidation, upon such termination, all purchase rights under the Plan shall automatically lapse, and all payroll deduction accounts shall be refunded with interest to the participants as soon as practicable. 11. NON-TRANSFERABILITY OF RIGHTS. Purchase rights granted an employee under the Plan are exercisable, during such employee's lifetime, only by him; they may not be sold, transferred (other than by will or laws of descent or distribution), pledged or otherwise disposed of or encumbered. 12. RIGHTS AS A SHAREHOLDER. An employee or his estate, personal representative or beneficiary will have none of the rights and privileges of a shareholder of the Corporation with respect to shares of Common Stock subject to purchase rights under the Plan until certificates representing such shares of Common Stock have been transferred or issued. 13. STATUS OF PLAN FUNDS. All amounts received by the Corporation under the Plan may be used by the Corporation for any corporate purpose. 14. GOVERNMENTAL REGULATIONS. The Corporation's obligation to sell and deliver Common Stock under the Plan is subject to applicable laws and to the approval of any governmental authority required in connection with the authorization, issuance, sale or delivery of such Common Stock. In the event any governmental agency having any jurisdiction over the Plan, the qualification thereof or the shares of Common Stock to be issued thereunder fails or refuses to qualify the Plan or objects thereto, the Corporation may cause this Plan to be amended to conform with said governmental agencies requirements or may terminate the same, in which event all payroll deduction account balances shall be paid to employee participants. 15. INDEMNIFICATION OF COMMITTEE. The members of the Committee shall be indemnified by the Corporation against all reasonable expenses incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal thereof, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any offering or purchase right, and against all amounts paid by them in settlement thereof (provided such settlement is approved by counsel selected by the Corporation) or paid by them in satisfaction of a judgment in any such action, suit or proceeding. A member of the 8 Exhibit 10(d) Committee shall not be entitled to indemnification with respect to any matter or claim arising out of recklessness or willful misconduct by such member in the performance of his duties. As a condition of any indemnification, a Committee member shall in writing offer the Corporation the opportunity, at its own expense, to handle and defend any suit or claim against him. 16. EFFECTIVE DATE, TERMINATION AND AMENDMENT. The Plan is subject to the approval of the Corporation's shareholders within twelve (12) months following adoption of the Plan by the Board of Directors of the Corporation; and, if such approval is not received by such date, this Plan shall terminate, and no employee shall have any rights hereunder except to receive in cash the balance of his payroll deduction account including interest. The Plan may be amended from time to time or terminated by the Committee and/or the Board of Directors, provided that no such amendment or termination may adversely affect the rights of any participant under any outstanding purchase offering under this Plan, nor cause any purchase rights to fail to qualify under Section 423 of the Internal Revenue Code of 1986, as amended, and provided further that no such amendment may, without approval of the shareholders of the Corporation, (a) increase the maximum number of shares to be offered under the Plan (except as provided in Paragraph 9 hereof), (b) reduce the purchase price specified in subparagraph 6(f) (except as provided in Paragraph 9 hereof), (c) extend the term of offering periods under the Plan, or (d) change the person or categories of persons eligible to participate in the Plan specified in Paragraph 5 hereof. 17. WITHHOLDING. Any amounts to be paid or shares to be delivered by the Corporation under the Plan shall be reduced by any sums required to be withheld by the Corporation. 18. TAX EFFECT. There are no federal tax consequences resulting from the purchase of stock under this Plan. Under current law, upon the sale of any shares purchased under the Plan within one year of purchase, or prior to the termination of a current offering, the difference between the market value of the stock on the day it was purchased and the amount the employee paid for the stock is treated as compensation. The difference between the sales price of the stock and the market value on the day of purchase must be reported on the employee's tax return as a capital gain. Separate information and detailed examples will be provided by the Corporation to Plan participants shortly after the employee election to participate is made. ANY PARTICIPANT MUST INFORM THE CORPORATION IF SHARES ARE SOLD AS PROVIDED ABOVE. 19. NOTICE. Unless otherwise specifically provided herein, any notice to be given to the Committee under the Plan shall be given in writing and shall be deemed delivered for all purposes of the Plan if personally delivered to a member of the Committee or mailed to such Committee addressed to the Corporation by postpaid, certified United States mail. 20. MISCELLANEOUS. The term "his" or "him" as used in the Plan shall be deemed to refer to all eligible employees of the Corporation and participants herein irrespective of 9 Exhibit 10(d) gender or age. The Plan shall be governed by the laws of the State of Indiana. EX-10.(F) 10 1982 RESTRICTED STOCK AWARD PLAN 1 Exhibit 10(f) 7(b) Amended as of 2/19/97 1ST SOURCE CORPORATION 1982 RESTRICTED STOCK AWARD PLAN 1. PURPOSE. This Restricted Stock Award Plan (the "Plan') is intended to promote the interest of 1st Source Corporation, an Indiana Corporation (the "Corporation') and its shareholders by providing an incentive to induce continued future employment and performance of certain key exempt or non-exempt employees of the Corporation and certain key employees of one or more Subsidiaries of Corporation. For the purposes of this Plan, the term "Subsidiary' shall mean a corporation or corporations of which the Corporation owns, directly or indirectly, a majority of the outstanding voting stock. 2. ADOPTION AND ADMINISTRATION OF THE PLAN. The Plan shall become effective as of May 1, 1982. The Plan shall be administered by either the Executive Committee of the Corporation or a Special Committee appointed by the Executive Committee of the Corporation to administer the Plan (the "Committee'). As used herein, the term "Committee' shall refer to the Executive Committee of the Corporation if no Special Committee if no Special Committee for the administration of the Plan then exists or is then designated. The Committee shall interpret, implement, and administer the Plan to the extent and the manner contemplated herein it shall exercise the discretion granted to it as to the determination of who shall participate in the Plan, how many shares shall be allocated to each participant, and the time when such shares shall be allocated and issued to each participant. Any action taken by the Committee with respect to the implementation, interpretation or administration of the Plan shall be final, conclusive and binding on the Corporation and each participant. 3. STOCK SUBJECT TO PLAN. The Committee may allocate to the Restricted Stock Award Plan not more than 1% in any one year of the outstanding $1.00 par value common stock of the Corporation annually, which common stock is herein sometimes referred to as "shares.' The distribution of shares pursuant to this Plan may be made either from authorized and unissued shares or from Treasury shares as determined by the Committee. All shares issued in accordance with the Plan shall be fully paid and non-assessable shares and free from preemptive rights. 4. ELIGIBILITY. The Committee shall designate from time to time key exempt and non-exempt employees of the Corporation or a Subsidiary (including officers) engaged in activities which further the objectives of the Corporation, who shall be eligible to receive an allocation or allocations of shares under the Plan as recommended by the Chief Executive Officer, and the number of shares of stock of the Corporation to be allocated to each. In selecting those person to whom allocations of shares hereunder shall be made at any time, and in determining the number of shares to be allocated, the Committee shall consider with respect to those employees the position and responsibility of such persons, the value of their future services to the Corporation, the compensation otherwise received by persons and other factors as the Committee deems pertinent. 2 Exhibit 10(f) 5. FORM OF ALLOCATION. At the time of making any allocation by the Committee, the Committee shall advise the employee selected to participate in a stock award under this Plan as to such allocation by written notice in the form of Exhibit A annexed hereto, which employee so selected hereinafter is sometimes referred to as "Participant.' 6. ACTION REQUIRED OF PARTICIPANTS. (a) Within 30 days from the date of such written notice of allocation, the Participant shall notify the Committee, in writing, of acceptance of allocation, and the terms thereof, which notice shall be deemed delivered for all purposes by this Plan when personally delivered to the Chairman of the Committee or Chief Executive Officer or mailed to such Committee in care of Chief Executive Officer addressed to the Corporation by postpaid certified United States mail. (b) The Corporation may require that, in allocating shares, the Participant agree with, and represent to, the Corporation that Participant is acquiring such shares for the purpose of investment and with no present intention to transfer, sell or otherwise dispose of such shares except such distribution by a legal representative as shall be required by will or the laws of any jurisdiction in winding up the estate of any Participant. Such shares shall be transferable thereafter only if the proposed transfer shall be permissible pursuant to this Plan and if, in the opinion of counsel (who shall be satisfactory to Corporation), such transfer shall at such time be in compliance with applicable securities laws. (c) Concurrently with a Participant notifying the Corporation of the acceptance of an allocation, Participant shall deliver to the Corporation, in duplicate, an agreement in writing, signed by Participant in form and substance as set forth in Exhibit B hereon annexed, and the Corporation shall forthwith acknowledge its receipts thereof. The date of such delivery and receipt shall be deemed the "date of issuance' of the shares to which the same relate, as that phrase is used in this Plan. The failure to make such acceptance and delivery of such agreement within 30 days from the date of allocation shall terminate the allocation of such shares to the Participant. 7. RESTRICTIONS. By accepting the allocation of shares under this Plan, a Participant agrees and consents to the following additional restrictions: (a) A certificate or certificates for the shares allocated to a Participant shall be delivered by the Corporation to a Participant on the date at which restrictions set forth in paragraph 7(c) below, shall have lapsed. Until such time as the restrictions lapse, Corporation shall issue and retain in safekeeping such allocation. Upon issue Participant shall be a shareholder with respect to all of the shares represented by such certificate or certificates and shall have all rights of a shareholder with respect to all such shares, including the right to vote such shares and receive all dividends and other distributions, subject to termination upon the occurrence of an Act of Forfeiture as set forth in this Plan. The certificates for such shares may be either imprinted or stamped with a legend to the effect that the shares represented thereby may voluntarily or involuntarily disposed of except in accordance with this Plan (any such disposition being automatically an Act of Forfeiture) by the holder thereof until such time as the restrictions provided for herein lapse. (b) If new or additional or different shares or securities are distributed with respect to shares of common stock of the Corporation as the result of a stock split, stock dividend, combination of shares or other change involving 1st Source securities, or exchange for other securities, or 3 Exhibit 10(f) reclassification, reorganization, merger, consolidation, recapitalization or otherwise ("Exchange Event'), the Participant shall, as the owner of shares subject to restrictions hereunder, be entitled to such new or additional or different shares of stock or securities. (1) In the case of an Exchange Event, the certificate or certificates for, or other evidences of, such new and additional or different shares or securities shall be appropriately imprinted with the legend provided in paragraph 7(a) of this Plan, and all provisions of this Plan relating to restrictions and lapse of restrictions herein set forth shall thereupon be applicable to such new or additional or different shares or securities to the extent applicable to the shares with respect to which they were distributed; provided, further, that if the Participant shall receive rights, warrants or fractional interests in respect of any such shares, such rights or warrants and such fractional interests shall be received, by the Participant subject to all of the remaining restrictions herein set forth. All such additional shares, rights or other securities shall be retained in safekeeping by the Corporation for the account of the Participant. (2) In the case of a qualifying termination of employment of the Participant, as defined below, (i) all awarded shares subject to forfeiture under this Plan shall no longer be subject to forfeiture and shall be earned stock for all purposes of the Plan, and (ii) all restrictions on shares of stock theretofore awarded hereunder shall terminate (except for any restrictions imposed by applicable securities laws). The foregoing sentence shall be effective immediately prior to such shareholder with respect to all of the shares represented by such certificate or certificates and shall have all rights of a shareholder with respect to all such shares, including the right to vote such shares and receive all dividends and other distributions, subject to termination upon the occurrence of an Act of Forfeiture as set forth in this Plan. The certificates for such shares may be either imprinted or stamped with a legend to the effect that the shares represented thereby may not be sold, exchanged, transferred, pledged, hypothecated, assigned, conveyed, or otherwise voluntarily or involuntarily disposed of except in accordance with this Plan (any such disposition being automatically an Act of Forfeiture) by the holder thereof until such time as the restrictions provided for herein lapse. (c) The term "Restricted Period' with respect to any allocation of shares issued to a Participant under this Plan shall mean a period commencing on the date of issuance of such shares to the Participant and ending over a ten (10) year period thereafter. The restricted period shall terminate at the rate of ten percent (10%) of the allocation of shares for each year in which: (1) the Participant has served continuously as an employee, and was employed or retired at year end, or in which such employee dies while employed or retired. (2) the company return on equity meets or exceeds the rate of return on common equity established in advance by the Committee. Any year in which the cumulative rate of return on equity meets or exceeds the rate established for the accumulated years subsequent to the year of the award, will remove the restrictions for that year and any prior year for which the yearly rate failed to meet the established rate. 4 Exhibit 10(f) The Committee may designate the particular shares with respect to which such restrictions end at the expiration of each such yearly period either by authorizing the issuance of separate certificates or by other instruments or documentation as deemed feasible by the Committee, and such certificates shall be delivered to Participant forthwith. (d) For all purposes of this Plan, an Act of Forfeiture with respect to the remaining restricted stock of any award shall be deemed to be any one of the following: (1) Voluntary or involuntary termination including death, retirement or total disability of the employment of a Participant during the Restricted Period, or (2) The attempted sale, exchange, transfer, pledge, hypothecation, assignment, conveyance or other voluntary or involuntary disposition of any of the restricted shares during their Restricted Period, all of which is hereby expressly prohibited by this agreement, or (3) The election by the Participant to be taxed in the year of receipt of the restricted stock under Section 83(b) of the Internal Revenue Code of 1954 as amended, or (4) Termination of the ten-year restriction period if the annual or cumulative rate of return on common equity has not been achieved. (e) Upon the occurrence of an Act of Forfeiture relating to a Participant, the right, title and interest of all remaining restricted shares of Corporation allocated to the Participant shall be automatically forfeited and terminated for all purposes and Participant agrees on behalf of himself, his personal representatives, heirs, legatees, or successors to: (1) Execute and deliver to Corporation such forms of stock power, assignments or instruments of transfer which Corporation may reasonably request and, upon the failure of Participant or his personal representatives, heirs, legatees or successors so to do, the Secretary of Corporation is hereby appointed as the attorney-in-fact of Participant and his personal representatives, heirs, legatees or successors to execute and deliver any and all forms of stock power, assignments and instruments of transfer requested by the Committee to vest and transfer to Corporation complete title to all such forfeited shares, and further each Participant consents and agrees that the St. Joseph Circuit Court of St. Joseph County, Indiana, shall have personal jurisdiction over such Participant to permit Corporation to obtain an order to specific performance which is authorized and for which consent is hereby given by each Participant who accepts an allocation of shares under this Plan. (f) The right, title and interest of any transferee of any restricted shares acquired from a Participant under this Plan by Will or by the laws of descent and distribution shall be subject to all the terms and conditions of this Plan, including but without limitation, the restrictions on transfer and the provisions relating to forfeiture. (g) Any transfer or purported transfer made by a Participant at any time while restricted or prohibited by this Plan, except at the times and in the manner expressly authorized, shall be null and void and the Corporation shall not be obligated to recognize or give effect to such transfer on its books or records or recognize the person or persons to whom such purported transfer has been made as the legal beneficial holder of such shares. 5 Exhibit 10(f) (h) The Committee may impose such other restrictions on any shares allocated to a Participant pursuant to this Plan as it may deem advisable, including without limitation, restrictions under the Securities Act of 1933, as amended, under the requirements of any stock exchange upon which such shares or shares of the same class are then listed, and under any bluesky or securities laws applicable to such shares. 8. MISCELLANEOUS PROVISIONS. (a) Expense. All expenses and costs in connection with the -------- administration of the Plan shall be borne by the Corporation. (b) No Prior Rights of Offer. Nothing in the Plan shall be deemed to ------------------------- give any officer or employee of the Corporation or his or its legal representatives or assigns or any other person or entity claiming under or through any Participant any contractual or other right to Participant in the benefits of the Plan. (c) Indemnification of the Committee. In addition to such other --------------------------------- rights or indemnifications as they may have, the members of the Committee shall be indemnified by the Corporation against all costs and expenses reasonably incurred by them or any of them in connection with any action, suit or proceeding to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any award granted thereof and against all amounts paid by them in settlement thereof (provided such settlement is approved by legal counsel selected by the Corporation) or paid by them in satisfaction of a judgment in any such action, suit or proceedings, the person desiring indemnification shall give the Corporation an opportunity, at its own expense, to handle and defend the same. (d) Liability of Corporation. The Liability of the Corporation under ------------------------- this Plan or any allocation of shares made hereunder is limited to the obligation set forth with respect to such allocation, and nothing herein contained shall be construed to impose any liability on the Corporation in favor of any Participant with respect to any loss, cost or expense which a Participant may incur in connection with or arising out of any transaction in connection therewith. (e) No Agreement to Employ. Nothing in the Plan shall be construed ----------------------- to constitute or be evidenced of an agreement or understanding expressed or implied on the part of the qualifying termination of employment. (3) For purposes of this Section, the following defined terms have the described meanings. "Qualifying termination of employment' means the involuntary termination of the Participant's employment (1) within one year following an Exchange Event that involves the distribution of securities of an issuer other than 1st Source and that results in a change of control of 1st Source and (ii) for reasons other than the Participant's willful and continued failure to perform his or her material duties and other than the Participant's dishonesty or willful misconduct in connection with his or her work. "Change of control" means a change of ownership or management that the Committee, in its full and sole discretion, shall determine to be a change of control for purposes of this Section; in the absence of a contrary finding by the Committee, the acquisition by any person or group of persons, other than 1st Source, of beneficial ownership of 50.01% or more of the then outstanding shares of 1st Source common stock shall be deemed a change of control. EX-10.(H) 11 NON-QUALIFIED STOCK OPTION AGREEMENT 1 Exhibit 10(h) 6, 7(a), 10 and 13 Amended as of 2/19/97 13 Amended as of 12/11/97 1ST SOURCE CORPORATION NON-QUALIFIED STOCK OPTION AGREEMENT This option is granted effective as of January 1, 1992, by 1ST SOURCE CORPORATION (the "Corporation") to Christopher J. Murphy, III (the "Optionee") in accordance with the following terms and conditions: 1. OPTION GRANT. The Corporation hereby grants to the optionee options (the "Options"), which options are not intended to qualify under Section 422A of the Internal Revenue Code of 1986, as amended, to purchase 50,000 shares (the "Option Shares") of the common stock of the Corporation at the price of $29.75 per share (the "Exercise Price"). The Exercise Price is equal to the last sale price as reported for the Corporation's common stock on December 31, 1991, by the NASDAQ Exchange. 2. EXERCISE PERIOD. The Options shall be exercisable only during the period (the "Exercise Period") commencing from the date on which such Options vest (as defined in Section 3) and ending at 5:00 p.m., South Bend, Indiana time, on the date ten (10) years after the date on which such options vest, such later time and date being hereinafter referred to as the "Expiration Date." For example, the Exercise Period for the 10,000 Option Shares which vest on January 1, 1992, shall begin on January 1, 1992, and expire on December 31, 2002. During the Exercise Period, all vested Options as defined in Section 3 below shall be immediately exercisable in whole at any time or in part from time to time. 3. VESTING OF OPTIONS. Twenty percent (20%) of the aggregate Options granted hereunder will vest on January 1, 1992, with the remaining Options to vest at the rate of twenty percent (20%) of the aggregate options per year on each succeeding January 1 (i. e., 20% on January 1, 1993, 20% on - - January 1, 1994, etc.). 4. METHOD OF EXERCISE. All vested Options may be exercised during the applicable Exercise Period in whole or in part by giving written notice to the corporation specifying the number of Option Shares to be purchased. The notice must be directed to the Corporation at its principal office address, which currently is the address set forth in Paragraph 14. The date of exercise is the date on which such notice is received by the Corporation. Such notice must be accompanied by payment to the Corporation in full for the Option Shares to be purchased upon such exercise, in cash, certified check, cashier's check, money order or other form of payment acceptable to the Corporation. 2 Exhibit 10(h) 5. DELIVERY OF SHARES. Promptly after such payment referred to in Section 4, the Corporation shall issue and deliver to the Optionee a certificate or certificates representing the shares of stock so purchased, registered in the name of the Optionee. 6. NON-TRANSFERABILITY. The Options may not be assigned or transferred except, in the event of the death of the Optionee, by will or the laws of descent and distribution to the extent provided in Section 7 below. The Options are exercisable during the Optionee's lifetime only by the Optionee. 7. TERMINATION OF SERVICE OF THE OPTIONEE. (a) Death or Disability. If the Optionee dies or becomes ------------------- disabled (as hereinafter defined) following the date of the grant of the Options and while in the employ of the Corporation, and while Options granted hereunder are still in force and unexpired, the Optionee or his designated beneficiary or estate may exercise such options within a period of one year succeeding the death or disability of the optionee but only to the extent that the Option was vested at date of death or disability and, therefore, the Optionee was entitled to exercise such Options on the date of death or disability. No Options shall vest on or after date of termination of employment for death or disability. The term "disabled" means, the Optionee is unable to engage in employment activity for the Corporation by reason of a physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration, as verified by competent medical evidence. (b) Reasons Other Than Death or Disability. If the Optionee's -------------------------------------- employment with the Corporation is terminated for any reason other than death or disability, any and all unexercised Options shall expire and terminate immediately. 8. ADJUSTMENTS FOR CHANGES IN CAPITALIZATION OF THE CORPORATION. In the event of any change in the outstanding shares of common stock by reason of any reorganization, recapitalization, stock split, stock dividend, combination or exchange of shares, merger, consolidation, or any change in the corporate structure of the Corporation or in the shares of common stock, the number and class of shares covered by the Options and the Exercise Price shall be appropriately adjusted by the Corporation, whose determination shall be conclusive. 9. EFFECT OF CHANGE IN CONTROL WHERE CORPORATION SURVIVES. Each of the events specified in the following clauses (i) through (iii) of this Paragraph 9 shall be deemed a "change in control": (i) any third person, including a "group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, shall become the beneficial owner of 25% or more of the then outstanding shares of common stock of the Corporation or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote for the election of the Board of Directors of the Corporation (ii) as a result of, or in connection with, any cash tender offer, exchange offer, merger or other business combination, sale of assets or contested election, or combination of the foregoing, the persons who were directors of the Corporation shall cease to constitute a majority of the Board of Directors of the Corporation or (iii) the shareholders of the Corporation shall approve an agreement providing a sale or other disposition of all or substantially all the assets of the Corporation. In the event of a "change in control," all Options theretofore granted and not fully exercisable shall become fully vested and become exercisable in full upon the happening of such event and shall remain so exercisable in accordance with their terms. 3 Exhibit 10(h) 10. ASSIGNMENTS AND TRANSFERS. No right or interest of the Optionee may be assigned, encumbered or transferred except, in the event of the death of the Optionee, by will or the laws of descent and distribution. 11. OPTIONEE REPRESENTATIONS. Optionee represents and warrants: (a) Optionee is receiving the Options for his own account and not with a view to or for sale in connection with any distribution of such Options or Option Shares, or any part thereof, in any transaction which would be in violation of the securities laws of the United States of America or any state thereof. Optionee does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer, or grant participations to such person or to any third person with respect to the Options or the Option Shares. (b) Optionee (i) has acquired or has access to sufficient information about the Corporation to reach informed knowledgeable decisions about the Options and Option Shares, and (ii) has such knowledge and experience in financial and business matters to enable him to utilize the information made available to him in his management position with the Corporation to evaluate the merits and risks of an investment in the Option Shares and to make an informed decision with respect thereto. 12. STOCKHOLDER RIGHTS NOT GRANTED BY THE OPTIONS. The Optionee is not entitled by virtue hereof to any rights of a stockholder of the Corporation or to notice of meetings of stockholders or to notice of any other proceedings of the Corporation. 13. WITHHOLDING TAX. Where the Optionee or another person is entitled to receive Option Shares pursuant to the exercise of the Options, the Corporation shall have the right to require the Optionee or such other person to pay to the Corporation the amount of any taxes which the Corporation is required to withhold with respect to such Option Shares, or, in lieu thereof, to retain, or sell without notice, a sufficient number of such shares to cover the amount required to be withheld, or in lieu of any of the foregoing, to withhold a sufficient sum from the Optionee's compensation payable by the Corporation to satisfy the Corporation's tax withholding requirements. The Corporation's method of satisfying its withholding obligations shall be solely in the discretion of the Corporation, subject to applicable federal, state and local law. 4 Exhibit 10(h) 14. NOTICES. All notices hereunder to the Corporation shall be delivered or mailed to it addressed to the President of 1st Source Corporation, 100 North Michigan Street, South Bend, Indiana 46601. Any notices hereunder to the optionee shall be delivered personally or mailed to the Optionee's home address as reflected in the records of the Corporation. Such addresses for the service of notices may be changed at any time provided written notice of the change is furnished in advance to the Corporation or to the Optionee, as the case may be. 15. OPTIONEE SERVICE. Nothing shall limit the right of the Corporation contained herein to terminate the Optionee's service as a director, officer or employee, or otherwise impose upon the Corporation or any obligation to employ or accept the services of the Optionee. 16. OPTIONEE ACCEPTANCE. The Optionee shall signify his acceptance of the terms and conditions of the Options by signing in the space provided below. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. 1st SOURCE CORPORATION ("Corporation") Date Signed: 12/31/91 By /s/ ERNESTINE M. RACLIN --------------------- --------------------------------------- Ernestine M. Raclin Chairman ACCEPTED: Date Signed: 12/31/91 /s/ CHRISTOPHER J. MURPHY, III --------------------- ------------------------------------------ Christopher J. Murphy, III ("Optionee") 5 Exhibit 10(h) AMENDMENT TO 1ST SOURCE CORPORATION NON-QUALIFIED STOCK OPTION AGREEMENT The 1st Source Corporation Non-Qualified Stock Option Agreement, effective January 1, 1992, between 1st Source Corporation and Christopher J. Murphy, III is hereby amended as follows: 1. Section 6 is amended in its entirety to read as follows: 6. Non-Transferability. The Option may not be assigned, ------------------- encumbered, or transferred except (a) in the event of the death of the Optionee, by will or the laws of descent and distribution to the extent provided in Section 7 or (b) by transfer without consideration as provided in Section 10. The Option is exercisable during the Optionee's lifetime only by the Optionee or a Permitted Transferee. as defined in Section 10. 2. Subsection (a) of Section 7 is amended in its entirety to read as follows: (a) Death or Disability. If tile Optionee dies or ------------------- becomes disabled (as hereinafter defined) following the date of the grant of the Option and while in the employ of the Corporation, and while Options granted hereunder are still in force and unexpired, the Optionee, his designated beneficiary or estate, or a Permitted Transferee pursuant to Section 10 may exercise such Options within a period of one year succeeding the death or disability of the Optionee but only to the extent that the Option was vested at date of death or disability and, therefore, the Optionee or Permitted Transferee was entitled to exercise such Option on the date of death or disability. No Options shall vest on or after the date of termination of employment for death or disability. The term "Disabled" means that the Optionee is unable to engage in employment activity for the Corporation by reason of a physical or mental impairment that can be expected to result in death or to be of long-continued and indefinite duration, as verified by competent medical evidence. 3. Section 10 is amended in its entirety to read as follows: 10. Permitted Transfers. Subject to such rules as the ------------------- Corporation may adopt to preserve the purposes of the grant, the Optionee may transfer the Option without consideration to the following ("Permitted Transferees"): (i) a member of the Optionee's immediate family, including, only his spouse, lineal descendants, and adopted children, his spouse's, lineal descendants and adopted children, and the legal representatives of any of those persons who are minors. (ii) an irrevocable trust solely for the benefit of the Optionee and his 6 Exhibit 10(h) immediate family; (iii) a partnership, limited liability company, or corporate entity whose sole owners of its capital interests are the Optionee and his immediate family; or (iv) a revocable trust with respect to which the Optionee, as settlor of the trust, retains the right of revocation or amendment until his death. Such a transfer shall be effective only if the Optionee notifies the Corporation in advance and in writing of the terms of the transfer and if the Corporation determines that the transfer complies with this Agreement. Upon transfer, the option shall remain subject to the terms of this Agreement, except the Permitted Transferee may not transfer the option otherwise than be will or by the laws of descent and distribution. 4. Section 13 is amended in its entirety to read as follows: 13. Special Payment and Withholding. Upon exercise of a ------------------------------- nonstatutory stock option pursuant to the terms of the Plan, the Corporation shall also make a special payment to the Optionee. The special payment shall be in an amount such that, after payment by the Optionee of income and employment taxes imposed on the special payment, the Optionee shall retain an amount equal to the Optionee's income and employment tax liability imposed on the option exercise. The Corporation may withhold a sufficient sum from the special payment, or require the Optionee or Permittee Transferee to make other arrangements satisfactory to the Corporation, to satisfy the Corporation's tax withholding obligations with respect to both the option exercise and the special payment. This Amendment is effective the 1st day of March , 1997. ------ --------- 1ST SOURCE CORPORATION Signed by Directive of Philip J. Faccenda, By /s/ LARRY E. LENTYCH Chairman of the Executive Comepnsation ----------------------------- Committee Larry E. Lentych, CFO /s/ CHRISTOPHER J. MURPHY, III ------------------------------- Optionee The 1st Source Corporation Non-Qualified Stock Option Agreement (the "Agreement") effective January 1, 1992, between 1st Source Corporation and Christopher J. Murphy III, as amended, is hereby further amended as follows: 7 Exhibit 10(h) Delete in its entirety the Amendment to the Agreement dated March 1, 1997, with reference to Section 13, and reinsert the original Section 13, as was first contained in the provisions of the Stock Option Agreement that was effective January 1, 1992. By execution below, each party hereto consents to this Amendment and also consents to a new amendment to the 1992 Stock Option Plan (the "Plan"), which was previously amended to add Section 5.10, and which is now to be further amended to delete said Section 5.10 in its entirety from the previous Plan Amendment. This Amendment is effective December 11, 1997. 1ST SOURCE CORPORATION By/s/ LARRY E. LENTYCH ------------------------------------ Larry E. Lentych OPTIONEE /s/ CHRISTOPHER J. MURPHY, III --------------------------------------- Christopher J. Murphy, III EX-10.(I) 12 1992 STOCK OPTION PLAN 1 Exhibit 10(i) 5.6 Amended as of 1/24/94 5.8 Amended as of 2/19/97 5.9 and 5.10 Added as of 2/19/97 2 and 3 Amended as of 4/17/97 5.10 Deleted as of 12/11/97 1992 STOCK OPTION PLAN Purpose: To assist in securing and retaining key employees. Stock Subject to the Plan: 1,790,702 shares of unissued Treasury stock, with 1,248,491 shares remaining after options granted through December 31, 1997. Administration: Executive Compensation Committee of the Board of Directors. Eligibility: Key employees, officers and directors selected by the Executive Compensation Committee on recommendation of CEO. Restrictions: A ten-year option awarded at fair market price which may vest over a specified period. Purchase may accrue for ten years from vesting date. The shares purchased may not be sold for a period of three years after exercising the option to purchase the stock. OPTIONS: Determination: Key employees who have direct profit impact and are deemed to be long-term leadership of company. A percentage of salary on salary and bonus up to 100% divided by market stock price on day of award. 2 Exhibit 10(i) 1. PURPOSE AND SCOPE OF PLAN. The purpose of the Plan is to aid 1st Source Corporation (herein called the "Company") and its subsidiaries in securing and retaining key employees of outstanding ability and to motivate such employees to exert their best efforts on behalf of the Company and its subsidiaries. In addition, the Company expects that it will benefit from the added interest which the respective optionees will have in the welfare of the Company as a result of their ownership or increased ownership of the Company's Common Stock. The options which may be granted under the Plan are incentive stock options and nonstatutory stock options. For purposes of the plan, an "incentive stock option" is an option which meets the requirements of Section 422 of the Internal Revenue Code, and a nonstatutory stock option" is an option which is not an "incentive stock option." 2. STOCK SUBJECT TO THE PLAN. The total number of shares of Common Stock of the Company that may be optioned under the Plan is 500,000, as adjusted after the effective date pursuant to Section 6. The total number of shares that may be granted under the Plan to any employee during any calendar year shall not exceed 100,000 shares, as adjusted. Shares may consist, in whole or in part, of unissued shares or treasury shares. If any shares that have been optioned cease to be subject to option, they may again be optioned under the Plan. During the period that any options granted under the Plan are outstanding, the Company shall reserve and keep available such number of shares of Common Stock as will be sufficient to satisfy all outstanding unexercised options. 3. ADMINISTRATION. The Plan shall be administered by the Executive Compensation Committee of the Board of Directors, herein called the "Committee," each of whom shall be a "non-employee director" as provided under Rule 16b-3 of the Securities Exchange Act of 1934, as amended, and an "outside director" as provided under Section 162(m) of the Internal Revenue Code of 1986, as amended. The Committee shall have the authority, consistent with the Plan: (i) To select the eligible employees to whom options shall be granted under the Plan; (ii) To determine the terms and conditions of each option including but not limited to the date of grant, the dates(s) of exercise, the number of shares of Common Stock subject to the option, and the restrictions, if any, to be imposed upon the transfer of shares purchased pursuant to the option; (iii) To prescribe the form of all stock option agreements and any other agreement or document which the Committee determines is appropriate in connection with the Plan; (iv) To prescribe rules and regulations for the administration of the Plan; 3 Exhibit 10(i) (v) To construe and interpret any provision of the Plan and any option agreement or other agreement executed in connection with the Plan; and (vi) To determine whether the option is an incentive stock option or a nonstatutory stock option. 4. ELIGIBILITY. Key employees, including officers or directors of the Company and its subsidiaries who are from time to time responsible for the management, growth and protection of the business of the Company and its subsidiaries, are eligible to be granted options under the Plan. The optionees under the Plan shall be selected from time to time by the Committee, in its sole discretion, from among those eligible, and the Committee shall determine in its sole discretion, the number of shares to be covered by the option or options granted to each optionee. A member of the Committee shall not be eligible to participate in the Plan. 5. TERMS AND CONDITIONS OF OPTIONS. All options granted under this Plan shall be subject to the foregoing, and to the following terms and conditions and to such other terms and conditions not inconsistent therewith, as the Committee shall determine. 5.1 The price to be paid for shares of Common Stock upon the exercise of each option shall be determined by the Committee at the time such option is granted, but such price in no event shall be less than the fair market value of the Common Stock on the date on which such option is granted. For purposes of the Plan, "fair market value" shall mean the closing price of a share of Common Stock, as reported by NASDAQ, or by any other exchange upon which the shares may be traded, on the day on which the value is to be determined or if that day is not a stock trading day, then on the last preceding stock trading day. Notwithstanding the foregoing, in the case of an incentive stock option granted to any person who, at the time of grant of such option, owns stock of the Company possessing more than 10% of the total combined voting power of all classes of stock of the Company, the option price must be at least 110% of the fair market value of the stock subject to the option and such option by its terms must not be exercisable after the expiration of five years from the date such option is granted. 5.2 Each option shall be exercisable during and over such period ending not later than ten years from the date it was granted, as may be determined by the Committee and stated in the option, except as otherwise required in Paragraph 5.1 above. No incentive stock option shall be granted after March 4, 2002. 5.3 No option shall be exercisable for six months following the date of grant. 4 Exhibit 10(i) 5.4 Payment for shares purchased pursuant to exercise of an option shall be made either in cash or by check, or by delivery in exchange for such option shares Company shares with a fair market value on the date of exercise equal to the option price, or a combination of both. Fair market value for the purpose of this Paragraph 5.4 shall have the same meaning as provided in Paragraph 5.1. No optionee shall have any rights to dividends or other rights of a stockholder with respect to shares subject to an option until such optionee has given written notice of exercise of such option and paid in full for such shares. 5.5 If an optionee's employment by the Company or a subsidiary terminates by reason of the optionee's retirement, death or permanent and total disability, all of the optionee's outstanding options must thereafter be exercised during the period of twelve months after the date of the optionee's retirement, death or disability, or the stated period of the option, whichever period is shorter. Notwithstanding the foregoing, in the case of an incentive stock option, if an optionee's employment by the Company or a subsidiary terminates solely by reason of the optionee's retirement, all such outstanding options must thereafter be exercised during the period of three months after the date of the optionee's retirement, or the stated period of the option, whichever period is shorter. 5.6 If an optionee's employment by the Company or a subsidiary is terminated by reason other than retirement, death or permanent and total disability, all of the optionee's unexercised outstanding options, unless otherwise provided in an employment agreement, shall become null and void. 5.7 The Committee may require each person purchasing shares pursuant to the option to represent to and agree with the Company in writing that he/she is acquiring the shares without a view to distribution thereof. The certificates for such may include any legend which the Committee deems appropriate to reflect any restrictions on transfers. 5.8 Except as provided in Paragraph 5.9, no option granted pursuant to this Plan shall be transferable otherwise than by will or by the laws of descent and distribution, or pursuant to a qualified domestic relations order. The Company shall not be liable to any person for honoring the exercise of the option of a deceased optionee by the person or persons it shall have determined in good faith to have acquired the option. During the lifetime of an optionee, the option shall be exercisable only by the optionee. 5.9 Subject to such rules as the Committee may adopt to preserve the purposes of the Plan, an optionee may transfer a nonstatutory stock option without consideration to the following ("Permitted Transferees"): 5 Exhibit 10(i) (i) a member of the optionee's immediate family, including only his or her spouse, lineal descendants, and adopted children, the spouse's lineal descendants and adopted children, and the legal representatives of any of those persons who are minors; (ii) an irrevocable trust solely for the benefit of the optionee and his or her immediate family; (iii) a partnership, limited liability company, or corporate entity whose sole owners of its capital interests are the optionee and his or her immediate family; or (iv) a revocable trust with respect to which the optionee, as settlor of the trust, retains the right of revocation or amendment until his or her death. Such a transfer shall be effective only if the optionee notifies the Committee in advance and in writing of the terms of the transfer and if the Committee determines that the transfer complies with the Plan and any applicable option agreement. Upon transfer, the option shall remain subject to the terms of the Plan and any applicable option agreement, except the Permitted Transferee may not transfer the option otherwise than by will or by the laws of descent and distribution. 6. CHANGES IN CAPITAL. If the outstanding Common Stock of the Company, shares of which are eligible for the granting of options hereunder or subject to options theretofore granted, shall at any time be changed or exchanged by declaration of a stock dividend, split-up, combination of shares, recapitalization, merger, consolidation or other corporate reorganization in which the Company is the surviving corporation, the Committee shall determine what changes, if any, are appropriate in the number and kind of shares subject to the Plan, and the Committee shall determine what changes, if any, are appropriate in the option price under and the number and kind of shares covered by outstanding options granted under the Plan. In the event of a dissolution or liquidation of the Company or a merger, consolidation, sale of all or substantially all of its assets, or other corporation reorganization in which the Company is not the surviving corporation, notwithstanding the terms and conditions otherwise set forth in the Plan, all options previously granted and still outstanding shall become exercisable. 7. USE OF PROCEEDS. Proceeds from the sale of stock pursuant to options granted under this Plan shall constitute general funds of the Company. 8. AMENDMENTS. The Board of Directors may amend, alter, suspend or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would impair the rights of any optionee under any option theretofore granted, without the optionee's consent, or which, without the approval of the shareholders, would: 6 Exhibit 10(i) (i) Except as is provided in Paragraph 6 of the Plan, increase the total number of shares reserved for the purposes of the Plan. (ii) Change the employees (or class of employees) eligible to receive options under the Plan. (iii) Change the class of shares for which options may be granted. (iv) Change the provisions of Paragraph 5.1 concerning the exercise price. (v) Change the provisions of Paragraph 5.2 concerning the maximum term of the options. 9. EFFECTIVE DATE OF THE PLAN. The effective date of the Plan shall be the date that the Plan is approved by a majority vote of the holders of the total outstanding Common Stock of the Company. 10. MISCELLANEOUS. The term "Board of Directors" as used herein shall mean the Board of Directors of the Company and not a committee thereof. EX-13 13 PORTIONS OF ANNUAL REPORT 1 CORPORATE DESCRIPTION 1st Source Corporation takes pride in its identification as a locally owned community bank delivering a comprehensive range of consumer and commercial banking services to individual and business customers. At the same time, 1st Source competes for business nationwide by offering specialized financing services for used private aircraft, automobiles for leasing and rental agencies, heavy duty trucks and construction equipment. Headquartered in South Bend, Indiana, 1st Source Bank serves local customers through a total of 45 banking centers in the Northern Indiana/Southwestern Michigan market area. 1st Source also operates 1st Source Leasing, 1st Source Insurance, 1st Source Capital Corporation and Trustcorp Mortgage Company, a mortgage banker with four offices in Indiana and one in Ohio. With a history dating back to 1863, 1st Source has a tradition of providing superior service to customers while playing a leadership role in the continued development of the communities in which it operates. 1997 IN BRIEF 1997 net income of $26.5 million was the highest in 1st Source history and 14.2% higher than the $23.2 million earned in 1996. Adjusting for a 10% stock dividend declared January 20, 1998, diluted net income per common share for 1997 was $1.49, up 12.9% from the $1.32 for 1996. Return on average total assets was 1.21% compared to 1.22% a year ago. Return on average common equity was 14.51% for 1997 compared to 14.38% for 1996. The average common equity-to-assets ratio for 1997 was 8.30% compared to 8.51% last year. At year-end 1997, total assets were $2.42 billion, up 16.3% from a year earlier. Loans were up 23.4%, deposits were up 15.8% and shareholders' equity increased from $171.8 million at the end of 1996 to $195.0 million at the end of 1997. The reserve for loan losses at year-end 1997 was 1.97% of total loans, while nonperforming assets amounted to 0.64% of total loans. NET INCOME (In Millions) [GRAPH]
93 94 95 96 97 (16.7) (18.5) (21.0) (23.2) (26.5)
DILUTED NET INCOME PER COMMON SHARE [GRAPH]
93 94 95 96 97 (0.95) (1.05) (1.19) (1.32) (1.49)
RETURN ON AVERAGE COMMON EQUITY (As a Percent) [GRAPH]
93 94 95 96 97 (14.52) (14.49) (14.75) (14.38) (14.51)
RETURN ON AVERAGE TOTAL ASSETS (As a Percent) [GRAPH]
93 94 95 96 97 (1.16) (1.19) (1.25) (1.22) (1.21)
-------- 1 2 TO OUR SHAREHOLDERS: 1997 was indeed a good year for 1st Source. We completed the year with record earnings, record asset growth, new branches in Indiana and Michigan, and new sales representatives in North Carolina and the Northwest. We also began exploring the international expansion of our niche businesses. First, a review of the numbers. We achieved our 12th consecutive year of growth in revenues and profits, earning $26.5 million, a 14.2 percent increase over the prior year. This is matched by our growth in diluted net income per common share from $1.32 to $1.49, a 12.9 percent increase over the prior year. Our return on average common shareholders' equity was 14.51 percent and our return on average total assets was 1.21 percent. We also had a substantial 16.3 percent growth in assets, all internal, and ended the year with total assets of $2.42 billion. This was fueled by the continued growth of our local market lending businesses, our national niche lending businesses and by the opening of 14 new branch facilities over the last two years. Our credit experience has been excellent with net losses of only $144,000 in 1997. This resulted in a 1997 loan loss ratio of .01 percent. It doesn't get much better than this! We ended the year with a loan loss reserve of 1.97 percent of loans outstanding despite substantial growth in loans during the year. The coverage ratio of our loan loss reserve to nonperforming assets was a very strong 310 percent. Clearly, 1997's performance was impacted by a number of items. The addition of so many branches over the last couple of years has slightly increased our expense to revenue ratio to 57.7 percent. Over the next three years, we will continue to work to bring it back to the low 50s. The growth in the value of our stock by 63 percent in 1997 required us to increase our incentive reserves. We settled a longstanding dispute with the IRS arising from our 1983 purchase of the First National Bank of Mishawaka over deduction of the core deposit intangibles. Our tax books are now clear through 1993 and the settlement cost was approximately $350,000 in additional interest. We also took advantage of the extension of an IRS regulation allowing contribution of appreciated securities to private foundations to further fund the 1st Source Foundation. We raised $44.75 million in long-term capital by issuing two Trust Preferred Securities. A new subsidiary was created to segment and manage the non-Indiana assets of our national niche lending businesses. Lastly, we adopted SFAS No. 125 which requires us to recognize additional income from our securitization activities. [PHOTO] Christopher J. Murphy III President and Chief Executive Officer In summary, it was an excellent year for 1st Source and is another positive step on the road to achieving our Vision 2000 goals. In 1995 we wrote that we had developed a Vision for the Year 2000 which included: * Being the leading financial institution in the markets we serve; * Providing the highest quality service; * Nurturing a pride of ownership and a spirit of teamwork in all of our colleagues; * Maintaining independent ownership; * Upholding the highest ethical standards in our industry; * Embracing the social and economic ideals of the communities we serve; * Delivering consistently superior financial returns. - -------- 2 3 [PHOTO] Ernestine M. Raclin Chairman of the Board Our mid-course review conducted during 1997 of these and our Vision 2000 financial goals tells us that what once was a dream is now a real possibility. We continue to make necessary corrections but are still focused on the same goals and have a good chance of achieving them so long as the economy stays healthy, interest rates remain in a relatively stable range, and employment holds up. We are optimistic about the future but do see some significant challenges. PEOPLE Attracting, training, and retaining good people is perhaps the toughest challenge we face. With area unemployment in the 3 percent range and demand for superior performers so high, it is tough finding and hiring the good people we need. While we have been fortunate and successful in our college recruiting efforts, our needs have expanded considerably with the growth of our on-line banking service and the opening of so many new branches. Additionally, our reputation for attracting and training good people has made us the target of choice for businesses that want to expand in our markets. During the early part of the year we launched a major effort to identify and recruit people who have a serious commitment of service to others to join us. We have used a series of diagnostic tests to help us select people who will continue to deliver the highest level of personal service in a professional way. We expanded our college recruiting program and employed the services of search firms to broaden our efforts. Some of these activities have been successful and we enter 1998 with an even stronger commitment to attract people to 1st Source who will embrace our core values and help deliver on our mission to build customer wealth. TRAINING AND TOOLS Keeping ourselves up to date with the changes in our business products and services, and preparing ourselves to effectively compete through proactive relationship management is a daunting task. Banks are becoming further deregulated and are able to sell new products in the investment and insurance areas. We must be more knowledgeable and sophisticated in assessing and understanding the needs of our clients. We must learn to use our "customer x-ray" and our "service templates" to anticipate and meet the needs of our individual clients. Training and continuing education are central to the concept of a learning organization. We continued to accelerate formal disciplined training in our Quality Improvement and Quality Planning efforts. We spent considerable time discussing the concept of relationship management, defining how it is to work at 1st Source, and designing service templates to guide us in the delivery of the very best in service. We taught analytical skills and tools for managing and making change. And lastly, we introduced customer focus groups, customer satisfaction analysis, and direct customer interviews as a basic part of the business manager's tool kit. Surveys were undertaken and the results used in branches, small business banking, employee benefits administration and management, and commercial banking. MARGINS AND INTEREST RATE RISK The difference between our cost of funds and our earnings on those funds is getting smaller. Keeping it from shrinking further is becoming more difficult. There are clearly more alternatives for the saver's dollars and consumers seem to have forgotten the risk of loss inherent in the stock market. The significant and well-publicized growth in the market over the past few years has attracted a lot of dollars out of savings. There are also new financial competitors in our region competing for the dollars that remain. This has led to aggressive bidding for funds and an -------- 3 4 increase in the cost of attracting and retaining funds. At the same time, pricing competition remains strong on the asset side, as many banks try to grow their loan portfolios. We have seen banks trying to increase their lending market share with price incentives and easier credit terms. Some of this reminds us of the early eighties just before the bottom dropped out! We maintain a commitment to disciplined pricing and credit terms. Our strategy is to be aggressive with pricing and to hold true to the basics in granting credit. Too often we have seen financial institutions, in their efforts to grow, jump into and out of geographic and product markets using lower pricing and easier credit standards. When they leave, as they inevitably do, the landscape is filled with bankrupt companies and broken dreams. We take our responsibility seriously and will maintain our credit standards knowing it is in the long term best interest of our borrowing customers, our depositors and our shareholders. We have also tried to manage our asset and liability mix so that movements in interest rates have as little impact on us as possible. We have used the cash markets, deposit pricing and the swap markets to do this. Our asset and liability management committee meets monthly to review our progress and make mid-course corrections as necessary based on our assessment of the economy and the near-term direction of rates. Almost all of the first mortgages produced in the bank and all of those produced in Trustcorp Mortgage Company are sold into the secondary market, although we retain the servicing rights to maintain customer contact. We have also used the capital markets to fund the growth in our aircraft lending by securitizing loans of these customers. We will continue to look for ways either to fund or to protect portions of the balance sheet from adverse interest rate movements or from difficult funding situations. TECHNOLOGY Choosing the right technologies to meet our growing needs and manage our product sales efforts has a major impact on our ability to compete and on our cost structure. We always want to be a high-touch service organization which uses technology to more effectively meet the needs of our clients. Similarly, we know that millions of dollars are wasted on technology projects which do not add value to the customer relationship. Often they are undertaken because a competitor has made the expenditure, the conventional wisdom says they should, or a vendor convinces them it is necessary to do so to stay competitive in the marketplace. Our approach is to invest only in those areas that make us a better bank in serving the customer and help us deliver on our mission to build our customer's wealth. We embraced check imaging technologies because we believed they would give us better control over the paper and make it easier to manage vast amounts of customer information. We believed there would be operational or administrative cost savings. Some of this has happened for us, but a lot has not. The process was more complicated and the savings are slower in coming. We will get them but it will take a longer time period to realize the returns anticipated from the investment. In contrast, our customer information automation system in our branches has exceeded our expectations and truly enhances our customer service efforts. Technology investing is always risky, but essential. Over the next year, we will work to ensure that all of our mission-critical systems and software are Year 2000 compliant. We started a major effort in early 1997 to identify all software with date-specific applications that could be affected by the year changing from 1999 to 2000. This is the first time since computers were developed that the last two digits in a year are lower than those of the prior year. By the close of 1997, we had catalogued our systems and software, identified the mission-critical programs, and confirmed compliance or began a process to bring about compliance. We will be making the appropriate changes and testing them in 1998 with the hope of ensuring that 2000 is nothing more than the passing of one more year. ADMINISTRATIVE AND REGULATORY ISSUES Trying to keep up with all the accounting changes and still properly reflect our performance has become increasingly difficult. Various pronouncements by the Financial Accounting Standards Board (FASB) seem to confuse financial reporting so that the numbers which are shown bear little resemblance to the - -------- 4 5 real operations or the value added in the business. These pronouncements have also added more volatility to both the income statement and the balance sheet. We know that the FASB is supposed to be making pronouncements and promulgating standards which cause companies to properly and uniformly reflect the real results of their operations. Our experience is that many of the newer pronouncements do just the opposite; they require us to make numerous assumptions about the future to reflect income now, before we have received it or are even assured of receiving it. For that reason we are trying to err on the side of conservatism in these assumptions. We think it is better to build for the future than to overstate the present. To be sure, at the close of 1997 we adopted SFAS No. 125 and had to reflect an additional $800,000 in revenues from our securitization activities this year based on our historical track record...which has been pretty good. Unfortunately, this causes us to estimate future income and report it now. If our assumptions prove too optimistic we will have to reverse income in future periods. Some mortgage companies and lenders in the lower quality B and C markets have had to do this in the past few years. With this in mind, we have taken a conservative approach to making our assumptions. The only thing we are sure about in the future is that it will not develop exactly as we assume, no matter what our assumptions. With all the required and suggested accounting changes, our traditional accounting and financial control and management systems are becoming less helpful in managing our businesses. They do not neatly reflect the operating characteristics nor the operating levers of the business. To address this we have spent the last year reviewing our financial control and reporting systems and developing a new methodology for the financial management of our businesses. 1st Source, like many other companies, has adopted Economic Value Added (EVA) as an analytical and management tool. We have done so knowing that it is not a management panacea and will not make our decisions for us. It is nothing more than a methodology for measuring and managing the financial equations of our business. We have been using discounted cash flow analysis for our investment decisions, for mergers and acquisitions, and for capital expenditures for the last 15 years. EVA is a modification of this with specific adjustments made for segments of our business. We know it will take time for this approach to be well understood by our colleagues, but we believe the effort is worthwhile. RECOGNITION We are pleased that our endeavors were recognized by others in 1997. 1st Source Corporation was named to the 1997 Honor Roll of Keefe, Bruyette & Woods, Inc. This acknowledges those banking companies who have reported increases in earnings per share regardless of the banking environment over the last decade. Of the 127 banking companies currently under their active research universe, we were among only eleven who posted a ten year record worthy of admission to the Honor Roll. Additionally, Standard and Poor's and a number of analysts have noted our consistent performance, and a statewide reader's poll conducted by Indiana Business Magazine selected 1st Source Bank as one of Indiana's Best Banks. While we are proud of our past accomplishments, we understand full well that what happens in the future is most important. There are many challenges still facing us as we move toward our Vision 2000 goals. We believe we are well prepared to deal with them. With the assistance of a great group of colleagues and the guidance of a dedicated Board of Directors, we have every reason to be optimistic about the future. We close by thanking them for being committed to serving our customers well...and for doing just that. /s/ Ernestine M. Raclin Chairman of the Board /s/ Christopher J. Murphy President and Chief Executive Officer -------- 5 6 Financial Highlights EARNINGS AND DIVIDENDS (Dollars in thousands, except per share amounts)
1997 1996 1995 1994 1993 - -------------------------------------------------------------------------------------------------------------------- Operating income $ 208,972 $ 174,299 $ 154,607 $ 127,816 $ 118,405 - -------------------------------------------------------------------------------------------------------------------- Operating expense 166,353 138,700 122,564 101,483 94,539 - -------------------------------------------------------------------------------------------------------------------- Net income 26,489 23,203 21,042 18,465 16,722 - -------------------------------------------------------------------------------------------------------------------- Cash dividends 4,723 4,123 3,594 3,204 2,755 ==================================================================================================================== Per Common Share : Diluted net income $ 1.49 $ 1.32 $ 1.19 $ 1.05 $ 0.95 - -------------------------------------------------------------------------------------------------------------------- Cash dividends .275 .240 .208 .185 .159 - -------------------------------------------------------------------------------------------------------------------- Book value 11.26 10.02 8.91 7.48 7.24 - -------------------------------------------------------------------------------------------------------------------- Return on average common equity 14.51% 14.38% 14.75% 14.49% 14.52% - -------------------------------------------------------------------------------------------------------------------- Return on average total assets 1.21% 1.22% 1.25% 1.19% 1.16% ==================================================================================================================== STATEMENT OF CONDITION Average Balances: Assets $2,198,300 $1,895,214 $1,686,560 $1,546,965 $1,440,018 - -------------------------------------------------------------------------------------------------------------------- Earning assets 2,046,637 1,767,055 1,569,703 1,435,892 1,340,357 - -------------------------------------------------------------------------------------------------------------------- Loans 1,610,889 1,348,089 1,172,438 1,066,752 986,958 - -------------------------------------------------------------------------------------------------------------------- Reserve for loan losses 31,966 28,482 26,081 23,685 20,859 - -------------------------------------------------------------------------------------------------------------------- Investment securities 424,086 400,209 373,976 360,276 344,091 - -------------------------------------------------------------------------------------------------------------------- Deposits 1,698,973 1,524,149 1,354,453 1,256,430 1,169,473 - -------------------------------------------------------------------------------------------------------------------- Shareholders' equity 182,543 161,324 142,667 127,451 115,186 ==================================================================================================================== The computation of per common share data gives retroactive recognition to a 10% stock dividend declared January 20, 1998; a five-for-four stock split declared January 21, 1997; a 5% stock dividend declared January 22, 1996; a three-for-two stock split declared July 18, 1995; a 5% stock dividend declared January 23, 1995; and a 5% stock dividend declared January 24, 1994.
[LOGO] - -------- 6 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ------------------------------------------------------------------------------ ABOUT OUR BUSINESS 1st Source Corporation (1st Source) is an Indiana-based, bank holding company with $2.42 billion in total assets, $1.89 billion in total deposits and $195.0 million in total shareholders' equity. 1st Source's principal subsidiary is 1st Source Bank with its main office in South Bend, Indiana. The assets of the bank account for 97% of the total consolidated assets of 1st Source. 1st Source Bank has 45 banking centers in 11 counties and is the largest independent bank in both assets and deposits headquartered in its principal market area of Northern Indiana and Southwestern Michigan. 1st Source Bank opened four new branches in 1997, including a striking facility in Michigan City, Indiana, that replaced the former banking center. At year-end, there were 41 banking center locations in Indiana and four in Michigan. Additionally, Trustcorp Mortgage opened an office in Merrillville, Indiana, in 1997, making their total number of offices five. The bank offers a broad range of commercial banking, personal banking and trust services. In addition, 1st Source also provides highly specialized financing services for automobile fleets in the rental and leasing industries; privately owned aircraft used by businesses and individuals; and heavy duty trucks and construction equipment. These services are marketed nationwide. This section of the Annual Report provides a narrative discussion and analysis of 1st Source's financial condition and results of operations for the last three years. All tables, graphs, financial statements and notes to the consolidated financial statements should be considered an integral part of this analysis. 1st Source cautions that any forward looking statements contained in this report, in a report incorporated by reference to this report or made by management of 1st Source involve risks and uncertainties and are subject to change based on various factors. Actual results could differ materially from those expressed or implied. AVERAGE ASSETS (In Millions) [GRAPH]
93 94 95 96 97 (1,440) (1,547) (1,687) (1,895) (2,198)
AVERAGE LOANS (In Millions) [GRAPH]
93 94 95 96 97 (987) (1,067) (1,172) (1,348) (1,611)
AVERAGE DEPOSITS (In Millions) [GRAPH]
93 94 95 96 97 (1,169) (1,256) (1,354) (1,524) (1,699)
AVERAGE SHAREHOLDERS' EQUITY (In Millions) [GRAPH]
93 94 95 96 97 (115) (127) (143) (161) (183)
-------- 7 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued - ------------------------------------------------------------------------------ SELECTED CONSOLIDATED FINANCIAL DATA (Dollars in thousands, except per share amounts)
1997 1996 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------- Interest income $ 173,316 $ 148,820 $ 135,115 $ 112,942 $ 104,104 - --------------------------------------------------------------------------------------------------------------------- Interest expense 87,324 73,429 64,946 47,709 44,578 - --------------------------------------------------------------------------------------------------------------------- Net interest income 85,992 75,391 70,169 65,233 59,526 - --------------------------------------------------------------------------------------------------------------------- Provision for loan losses 6,052 4,649 2,757 4,197 3,533 - --------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 79,940 70,742 67,412 61,036 55,993 - --------------------------------------------------------------------------------------------------------------------- Noninterest income 35,656 25,479 19,492 14,874 14,301 - --------------------------------------------------------------------------------------------------------------------- Noninterest expense 72,977 60,622 54,861 49,577 46,428 - --------------------------------------------------------------------------------------------------------------------- Income before income taxes 42,619 35,599 32,043 26,333 23,866 - --------------------------------------------------------------------------------------------------------------------- Income taxes 14,392 12,396 11,001 7,868 7,144 - --------------------------------------------------------------------------------------------------------------------- Distribution on preferred securities of subsidiary trusts, net of income tax benefit 1,738 - - - - - --------------------------------------------------------------------------------------------------------------------- NET INCOME $ 26,489 $ 23,203 $ 21,042 $ 18,465 $ 16,722 ===================================================================================================================== Assets $2,418,154 $2,079,767 $1,799,257 $1,583,027 $1,488,123 - --------------------------------------------------------------------------------------------------------------------- Long-term debt 16,656 18,596 21,819 28,084 25,473 - --------------------------------------------------------------------------------------------------------------------- Average shareholders' equity 182,543 161,324 142,667 127,451 115,186 - --------------------------------------------------------------------------------------------------------------------- Basic net income per common share 1.54 1.35 1.22 1.06 0.97 - --------------------------------------------------------------------------------------------------------------------- Diluted net income per common share 1.49 1.32 1.19 1.05 0.95 - --------------------------------------------------------------------------------------------------------------------- Cash dividends per common share .275 .240 .208 .185 .159 - --------------------------------------------------------------------------------------------------------------------- Return on average common equity 14.51% 14.38% 14.75% 14.49% 14.52% - --------------------------------------------------------------------------------------------------------------------- Return on average total assets 1.21% 1.22% 1.25% 1.19% 1.16% ===================================================================================================================== The computation of per share data gives retroactive recognition to a 10% stock dividend declared January 20, 1998; a five-for-four stock split declared January 21, 1997; a 5% stock dividend declared January 22, 1996; a three-for-two stock split declared July 18, 1995; a 5% stock dividend declared January 23, 1995; and a 5% stock dividend declared January 24, 1994.
- -------- 8 9 1st SOURCE CORPORATION AND SUBSIDIARIES - ------------------------------------------------------------------------------ RESULTS OF OPERATIONS Net income in 1997 was $26.5 million, up from $23.2 million in 1996 and $21.0 million in 1995. Diluted net income per common share was $1.49 in 1997, $1.32 in 1996 and $1.19 in 1995 after giving retroactive recognition to stock splits and stock dividends. Return on average total assets was 1.21% in 1997, compared to 1.22% in 1996 and 1.25% in 1995. Return on average common equity was 14.51% in 1997 versus 14.38% in 1996 and 14.75% in 1995. Net income in 1997 was favorably affected by strong loan growth and noninterest income growth. The increase in net interest income and noninterest income was partially offset by a higher provision for loan losses due to increased loan outstandings. In addition, expense increases occurred in salaries and benefits, furniture and equipment, marketing, leased equipment depreciation and other expense. Most of these expense increases, except leased equipment depreciation, were directly or indirectly the result of our continued branch expansion program. Dividends declared on common stock in 1997 amounted to $.275 per share, compared to $.240 in 1996 and $.208 in 1995. The level of earnings reinvested and dividend payouts are based on management's assessment of future growth opportunities and the level of capital necessary to support them. The quarterly results of operations for the years ended December 31, 1997 and 1996 are summarized below.
QUARTERLY RESULTS OF OPERATIONS (Dollars in thousands, except per share amounts) Three Months Ended ------------------ March 31 June 30 Sept. 30 Dec. 31 - ---------------------------------------------------------------------------------------------------------------- 1997 Interest income $39,146 $42,758 $44,842 $46,570 - ---------------------------------------------------------------------------------------------------------------- Net interest income 19,671 21,675 22,092 22,554 - ---------------------------------------------------------------------------------------------------------------- Provision for loan losses 1,229 479 2,130 2,214 - ---------------------------------------------------------------------------------------------------------------- Investment securities and other investment gains (losses) 181 (484) 24 (183) - ---------------------------------------------------------------------------------------------------------------- Income before income taxes and subsidiary trust distributions 9,360 10,224 11,033 12,002 - ---------------------------------------------------------------------------------------------------------------- Net income 6,066 6,441 6,638 7,344 - ---------------------------------------------------------------------------------------------------------------- Diluted net income per common share .34 .36 .38 .41 ================================================================================================================ 1996 Interest income $35,231 $36,881 $38,041 $38,667 - ---------------------------------------------------------------------------------------------------------------- Net interest income 17,836 18,788 19,260 19,507 - ---------------------------------------------------------------------------------------------------------------- Provision for loan losses 1,209 1,193 1,431 816 - ---------------------------------------------------------------------------------------------------------------- Investment securities and other investment gains 38 89 - 104 - ---------------------------------------------------------------------------------------------------------------- Income before income taxes 8,205 8,853 9,281 9,260 - ---------------------------------------------------------------------------------------------------------------- Net income 5,366 5,781 6,023 6,033 - ---------------------------------------------------------------------------------------------------------------- Diluted net income per common share .31 .33 .34 .34 ================================================================================================================ The computation of per share data gives retroactive recognition to a 10% stock dividend declared January 20, 1998, and a five-for-four stock split declared January 21, 1997.
BALANCE SHEET COMPOSITION AND MANAGEMENT Changes in interest income and interest expense are affected by the allocation of funds throughout the Statement of Financial Condition. The following sections discuss the sources from which 1st Source obtains funds and the manner in which management has chosen to invest these funds. -------- 9 10 Management's Discussion and Analysis of Financial Condition and Results of Operations -- Continued - ------------------------------------------------------------------------------- SOURCE OF FUNDS CORE DEPOSITS -- 1st Source's major source of investable funds is provided by stable core deposits consisting of all interest bearing and non-interest bearing deposits, excluding brokered certificates of deposit and certificates of deposit of $100,000 and over. In 1997, average core deposits equaled 63.36% of average total assets, compared to 68.32% in 1996 and 71.59% in 1995. The effective cost rate of core deposits in 1997 was 3.97%, compared to 3.98% in 1996 and 3.91% in 1995. Average demand deposits (non-interest bearing core deposits) increased 12.78% in 1997, compared to an increase of 7.83% in 1996. They represented 15.13% of total core deposits in 1997 compared to 14.43% in 1996 and 14.35% in 1995. PURCHASED FUNDS -- 1st Source's purchased funds are used to supplement core deposits and include certificates of deposit of $100,000 and over, brokered certificates of deposit, federal funds, securities sold under agreements to repurchase, commercial paper and other short-term borrowings. Purchased funds are raised from customers seeking short-term investments and are used to balance the bank's interest rate sensitivity. During 1997, 1st Source's reliance on purchased funds increased to 24.29% of average total assets from 20.33% in 1996. LOAN SECURITIZATIONS -- 1st Source sold $63 million of loans in 1997 in conjunction with revolving agreements related to prior years' securitizations. SHAREHOLDERS' EQUITY -- Management continues to emphasize profitable asset growth and retention of equity in the business. Average shareholders' equity equates to 8.30% of average total assets in 1997 compared to 8.51% in 1996. Shareholders' equity was 8.06% of total assets at year-end 1997, compared to 8.26% at year-end 1996. INVESTMENT OF FUNDS INVESTMENT SECURITIES -- Investment securities at year-end 1997 decreased 1.94% from 1996, following a 6.74% increase from year-end 1995 to year-end 1996. This decrease is attributed to the sale of various securities used to fund a bank-owned life insurance program. LOANS -- Average loans, net of unearned discount, increased 19.49% in 1997, following a 14.98% increase in 1996. Loans, net of unearned discount, at December 31, 1997, were $1.80 billion and were 74.30% of total assets, compared to $1.46 billion or 69.99% of total assets at December 31, 1996. Transportation and equipment loans at year-end 1997 increased 34.16% from year-end 1996. The higher outstandings reflect considerable growth in construction equipment, auto rental franchises, aircraft and truck, and automobile leasing company financings. Commercial lending outstandings increased 16.16% during 1997. This growth was fueled by geographic expansion, renewed emphasis on sales effort and customer service. The growth was primarily in small business and middle market lending. Real estate loans recorded growth of 21.37% during 1997. This increase was led by mortgage loans held for sale with an increase of 26.97%, followed by an increase of 20.42% in commercial real estate lending. The 22.32% growth in installment loans reflects our increased direct consumer lending resulting from greater marketing efforts coupled with the new retail banking centers. LIQUIDITY RISK MANAGEMENT -- The Asset/Liability management process incorporates overall bank liquidity and interest rate sensitivity. The purpose of liquidity management is to match the sources and use of funds to anticipated customer deposits, withdrawals and borrowing requirements, as well as to provide for the cash flow needs of 1st Source. The primary source of liquidity is the investment portfolio. At December 31, 1997, securities maturing in one year amounted to $97.9 million which represented 23.59% of the investment portfolio as compared to 18.43% at year-end 1996. Other alternative sources of funds are loan repayments and loan securitizations. The liquidity of 1st Source is further enhanced by a significant concentration of core deposits and $100,000-and-over certificates of deposit. Both provided a relatively stable funding base. INTEREST RATE RISK MANAGEMENT -- The Asset/Liability Management Committee of 1st Source monitors and manages the relationship of earning assets to interest bearing liabilities and the responsiveness of asset yields, interest expense and interest margins to changes in market interest rates. In the normal course of business, 1st Source faces ongoing interest rate risks and uncertainties. 1st Source utilizes interest rate swaps to manage the primary market exposures associated with the interest rate risk related to underlying assets, liabilities, and anticipated transactions. Under the current interest rate swaps, 1st Source entered into agreements with another - -------- 10 11 1st Source Corporation and Subsidiaries - ------------------------------------------------------------------------------- INVESTMENT OF FUNDS -- CONCLUDED MATURITIES OF INVESTMENT SECURITIES AT DECEMBER 31, 1997 (Dollars in thousands)
U.S. Treasury States and Political Other and Agencies Subdivisions Securities Total ======================================================================================================== Amount Yield Amount Yield Amount Yield Amount Yield ======================================================================================================== 0 - 1 Year $ 77,994 5.66% $ 19,776 6.98% $ 120 6.76% $ 97,890 5.93% - -------------------------------------------------------------------------------------------------------- 1 - 5 Years 83,113 6.02 59,517 7.33 4,865 6.37 147,495 6.56 - -------------------------------------------------------------------------------------------------------- 5 - 10 Years 6,096 6.02 57,612 8.41 1,953 7.14 65,661 8.15 - -------------------------------------------------------------------------------------------------------- Over 10 Years 61,681 6.15 11,323 7.32 30,858 5.26 103,862 6.01 - -------------------------------------------------------------------------------------------------------- Total $228,884 5.93% $148,228 7.70% $37,796 5.52% $414,908 6.52% ======================================================================================================== Weighted average yields on tax-exempt obligations have been computed by adjusting tax-exempt income to a fully taxable equivalent basis, excluding the effect of the tax preference interest expense adjustment.
party to exchange, at specific intervals, the difference between fixed-rate and floating-rate interest amounts as calculated by reference to a notional amount as a means to convert floating rate loans to a fixed rate. The notional amounts total $51.6 million at December 31, 1997. The current positions are not leveraged and are not held for trading. A hypothetical change in earnings was modeled by calculating an immediate 100 basis point (1.00%) change in interest rates across all maturities. This analysis presents the hypothetical change in earnings of those rate sensitive financial instruments and interest rate swaps held by 1st Source at December 31, 1997. The aggregate hypothetical loss in pre-tax earnings is estimated to be $4,501,840 on an annualized basis on all rate sensitive financial instruments and the interest rate swaps based on a hypothetical increase of 100 basis point change in interest rates. The aggregate hypothetical increase in pre-tax earnings is estimated to be $5,897,510 on an annualized basis on all rate sensitive financial instruments and the interest rate swaps based on a hypothetical decrease of 100 basis point change in interest rates. Actual results may differ materially from those projected. The use of this methodology to quantify the market risk of the balance sheet should not be construed as an endorsement of its accuracy or the accuracy of the related assumptions. Due to the nature of the mortgage banking business, 1st Source manages the earning assets and interest-bearing liabilities of Trustcorp Mortgage Company on a separate basis. The predominant assets on Trustcorp's balance sheet are mortgage loans held for sale, which are funded by short-term borrowings (normally less than 30 days) from correspondent banks. These borrowings are managed on a daily basis. Trustcorp's other borrowings for working capital and purchases of servicing assets are funded by 1st Source Corporation and correspondent banks. Trustcorp manages the interest rate risk related to loan commitments by entering into contracts for future delivery of loans. (See Note M of Notes to Consolidated Financial Statements.) EARNING RESULTS Net interest income, the difference between income from earning assets and the interest cost of funding those assets, is 1st Source's primary source of earnings. Net interest income, on a fully taxable equivalent basis, increased 13.31% in 1997, following a 7.01% increase in 1996. Net interest margin, the ratio of net interest income to average earning assets, is affected by movements in interest rates and changes in the mix of earning assets and the liabilities that fund those assets. Net interest margin on a fully taxable equivalent basis was 4.38% in 1997 compared to 4.48% in 1996 and 4.71% in 1995. The yield on earning assets in 1997 was 8.65%, compared to 8.64% in 1996 and 8.85% in 1995. Average earning assets in 1997 increased 15.82%, following a 12.57% increase in 1996. The effective rate on interest bearing liabilities was 5.04% in 1997, compared to 4.85% for both 1996 and 1995. NONINTEREST INCOME -- Supplementing the growth in net interest income was an increase in noninterest income of 39.94% over 1996. The factors influencing -------- 11 12 Management's Discussion and Analysis of Financial Condition and Results of Operations -- Continued - ------------------------------------------------------------------------------- COMPOSITION OF AVERAGE ASSETS (In millions) [GRAPH]
93 94 95 96 97 1,440.0 1,547.0 1,686.6 1,895.2 2,198.3
COMPOSITION OF AVERAGE LIABILITIES AND SHAREHOLDERS' EQUITY (In millions) [GRAPH]
93 94 95 96 97 1,440.0 1,547.0 1,686.6 1,895.2 2,198.3
EARNING RESULTS -- CONTINUED the growth were the recognition of additional aircraft loan securitization income, revenues generated from operating leases, and the sale of mortgage loans and servicing. Noninterest income in 1996 increased 30.72% over 1995 due primarily to the recognition of originated mortgage servicing rights, income derived from aircraft loan securitizations and revenues generated from operating leases. Trust fees in 1997 were $7.31 million, compared to $6.73 million in 1996 and $6.64 million in 1995. Trust fees increased 8.62% in 1997, following a 1.40% increase in 1996. Service charges on deposit accounts increased by 11.41% resulting in $5.38 million of income for 1997. The $4.83 million recorded in 1996 was a decrease of 2.13% from the $4.93 million of service charges on deposit accounts generated in 1995. 1st Source, as a result of adopting SFAS No. 125 during 1997 (see Note A of Notes to Consolidated Financial Statements), recognized aircraft loan securitization gains of $800,000. Aircraft loan securitization and servicing income in 1997 was $3.76 million, compared to $1.10 million in 1996. This increase resulted from servicing fees on $118 million of securitized loans in 1997, compared to only $58 million in securitized loans for most of 1996. Also contributing to the increase was the recognition of $1.20 million of income during 1997 due to favorable credit loss experience from the securitized assets. Gains of $1.28 million were recognized on the sale of mortgage loans and servicing in 1997, compared to gains of $863,000 in 1996. In addition, fees for servicing mortgages grew from $1.63 million in 1996 to $1.69 million in 1997. As of year-end 1997, Trustcorp Mortgage Company's mortgage servicing portfolio aggregates $1.35 billion, as compared to $1.28 billion one year ago. Equipment rental income generated from operating leases increased to $6.95 million in 1997, nearly a 154% increase over 1996. The $2.74 million recorded in 1996 was nearly a fivefold increase over 1995. Revenues from operating leases for construction equipment, automobiles and other equipment, - -------- 12 13 1st Source Corporation and Subsidiaries - ------------------------------------------------------------------------------- EARNING RESULTS -- CONTINUED and the related depreciation on the equipment, have increased significantly in the past two years as 1st Source has focused on increasing this line of business. Other income increased 23.44% during 1997, following an increase of 23.22% in 1996. The growth of other income in 1997 was generated primarily by increases in cash surrender value of bank-owned life insurance, mortgage underwriting fees and standby letter of credit fees. The growth in 1996 of other income was fueled by standby letter of credit fees, mortgage underwriting and document preparation fees and discount brokerage income. The 1997 net losses recorded for investment securities and other represent, primarily, the write-off of a venture capital investment. NONINTEREST EXPENSE -- During 1997, 1st Source experienced an increase in noninterest expenses primarily attributed to our continued branch expansion, costs to attract quality people and training to enable our people to deliver the highest service to our customers. In addition, the depreciation on our growing operating lease portfolio and the additional provisions needed for our stock incentive reserves contributed to the overall increase in operating expenses. Cost control across all business units and better utilization of resources continues to be a major focus at 1st Source. Noninterest expense increased 20.38% during 1997. This compares to an increase of 10.50% in 1996. The increase in noninterest expense during 1996 was primarily due to the acquisition and implementation of improved technologies and the opening of ten branches. Salaries and employee benefits comprised approximately 57% of total noninterest expense in 1997 compared to 59% in 1996. Salaries and employee benefits increased 15.80% in 1997, following a 10.72% increase in 1996. Salaries and wages increased 12.73% in 1997 and 12.67% in 1996. The number of full-time equivalent employees stood at 966, 895 and 811 at the end of 1997, 1996 and 1995, respectively. Employee benefits increased 27.07% in 1997, following a 4.08% increase in 1996. The increase in employee benefits was primarily the result of additional provisions being made to fund our stock incentive reserves, due to the significant 63% increase in the market price of 1st Source common stock during 1997. Group insurance expense decreased 9.86% in 1997, following an 11.62% increase in 1996. Occupancy expense in 1997 decreased 3.22% from 1996, following a 24.73% increase in 1996. The reduction in occupancy expenses in 1997 is attributed to greater tenant occupancy of our headquarters building. The 1996 occupancy expense increase was due to reduced tenant rental income and the branch expansion. Furniture and equipment expense increased in 1997 by 15.07%, following a 14.84% increase in 1996. The increase in 1997 is attributed to depreciation. Increases in 1996 occurred in depreciation, repair and outside computer processing expenses. In addition, equipment and furniture expenses relating, primarily, to the branch expansion contributed to the increase. Depreciation on operating leases increased 176% in 1997, following a 268% increase in 1996. Business development and marketing expense increased 33.78% in 1997, following an increase of 10.65% in 1996. The increase in 1997 was the result of appreciated stock with a cost basis of $753,000 being donated to the 1st Source Foundation. An increase of 19.56% occurred in other expenses during 1997, compared to a 9.26% decrease in 1996. During 1997, 1st Source experienced increases in employee acquisition and training, communications, professional consulting and collection and repossession expenses. In 1996, the significant increase in communication expenses was more than offset by a dramatic reduction in insurance expense. The FDIC reduced the premium assessment to zero per $100 of assessable deposits. This action drove overall insurance expenses down 76.25% for 1996. In early 1997, management formed a task force to analyze the business and operational risks associated with whether systems, software, and other date-specific applications are Year 2000 compliant. Completion of the study, testing and full implementation of any required changes to "mission critical" systems are targeted by December 31, 1998. At this time, management does not anticipate any material impact to 1st Source. INCOME TAXES -- Federal income taxes were $10.79 million in 1997, prior to the tax benefit of $936,000 relating to the distribution on preferred securities of subsidiary trusts. After this benefit, the federal income taxes were $9.86 million, or 27.12% of income after state taxes, compared to $9.13 million or 28.24% in 1996 and $8.07 million or 27.72% in 1995. The lower percentage of federal income taxes in -------- 13 14 Management's Discussion and Analysis of Financial Condition and Results of Operations -- Continued - ------------------------------------------------------------------------------- SELECTED STATISTICAL INFORMATION Distribution of Assets, Liabilities and Shareholders' Equity Interest Rates and Interest Differential (Dollars in thousands)
Year ended December 31, 1997 - --------------------------------------------------------------------------------------------------- Interest Average Income/ Yield/ ASSETS Balance Expense Rate - --------------------------------------------------------------------------------------------------- Investment securities: Taxable $ 272,400 $ 16,638 6.11% - --------------------------------------------------------------------------------------------------- Tax exempt 151,686 11,723 7.73 - --------------------------------------------------------------------------------------------------- Net loans & 1,610,889 148,061 9.19 - --------------------------------------------------------------------------------------------------- Other investments 11,662 592 5.08 - --------------------------------------------------------------------------------------------------- Total earning assets 2,046,637 177,014 8.65 =================================================================================================== Cash and due from banks 73,246 - --------------------------------------------------------------------------------------------------- Reserve for loan losses (31,966) - --------------------------------------------------------------------------------------------------- Other assets 110,383 - --------------------------------------------------------------------------------------------------- Total $2,198,300 =================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing deposits $1,488,287 73,150 4.92 - --------------------------------------------------------------------------------------------------- Short-term borrowings 227,757 13,014 5.71 - --------------------------------------------------------------------------------------------------- Long-term debt 16,527 1,160 7.02 - --------------------------------------------------------------------------------------------------- Total interest bearing liabilities 1,732,571 87,324 5.04 =================================================================================================== Noninterest bearing deposits 210,686 - --------------------------------------------------------------------------------------------------- Other liabilities 72,500 - --------------------------------------------------------------------------------------------------- Shareholders' equity 182,543 - --------------------------------------------------------------------------------------------------- Total $2,198,300 =================================================================================================== Net interest income $89,690 =================================================================================================== Net yield on earning assets on a taxable equivalent basis 4.38% =================================================================================================== Interest income includes the effects of taxable equivalent adjustments, using a 40.525% rate. Tax equivalent adjustments were $3,536 in 1997, $3,635 in 1996 and $3,635 in 1995. Loan income includes fees on loans of $4,097 in 1997, $3,136 in 1996, and $2,739 in 1995. Loan income also includes the effects of taxable equivalent adjustments, using a 40.525% rate. Tax equivalent adjustments were $162 in 1997, $131 in 1996 and $171 in 1995. For purposes of this computation, nonaccruing loans are included in the daily average loan balance outstanding. - -------- 14 15 1st Source Corporation and Subsidiaries - --------------------------------------------------------------------------------------------------------------------- Year ended December 31, 1996 1995 - --------------------------------------------------------------------------------------------------------------------- Interest Interest Average Income/ Yield/ Average Income/ Yield/ ASSETS Balance Expense Rate Balance Expense Rate - --------------------------------------------------------------------------------------------------------------------- Investment securities: Taxable $ 254,033 $ 15,337 6.04% $ 244,567 $ 15,184 6.21% - --------------------------------------------------------------------------------------------------------------------- Tax exempt 146,176 11,787 8.06 129,409 11,285 8.72 - --------------------------------------------------------------------------------------------------------------------- Net loans & 1,348,089 124,467 9.23 1,172,438 111,115 9.48 - --------------------------------------------------------------------------------------------------------------------- Other investments 18,757 995 5.30 23,289 1,337 5.74 - --------------------------------------------------------------------------------------------------------------------- Total earning assets 1,767,055 152,586 8.64 1,569,703 138,921 8.85 ===================================================================================================================== Cash and due from banks 75,378 72,647 - --------------------------------------------------------------------------------------------------------------------- Reserve for loan losses (28,482) (26,081) - --------------------------------------------------------------------------------------------------------------------- Other assets 81,263 70,291 - --------------------------------------------------------------------------------------------------------------------- Total $1,895,214 $1,686,560 ===================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Interest bearing deposits $1,337,345 64,214 4.80 $1,181,219 56,185 4.76 - --------------------------------------------------------------------------------------------------------------------- Short-term borrowings 156,003 7,843 5.03 135,373 6,938 5.13 - --------------------------------------------------------------------------------------------------------------------- Long-term debt 19,876 1,372 6.90 23,302 1,823 7.82 - --------------------------------------------------------------------------------------------------------------------- Total interest bearing liabilities 1,513,224 73,429 4.85 1,339,894 64,946 4.85 ===================================================================================================================== Noninterest bearing deposits 186,804 173,234 - --------------------------------------------------------------------------------------------------------------------- Other liabilities 33,862 30,765 - --------------------------------------------------------------------------------------------------------------------- Shareholders' equity 161,324 142,667 - --------------------------------------------------------------------------------------------------------------------- Total $1,895,214 $1,686,560 ===================================================================================================================== Net interest income $ 79,157 $ 73,975 ===================================================================================================================== Net yield on earning assets on a taxable equivalent basis 4.48% 4.71% =====================================================================================================================
-------- 15 16 Management's Discussion and Analysis of Financial Condition and Results of Operations -- Continued - ------------------------------------------------------------------------------- EARNING RESULTS -- CONCLUDED 1997 is the result of less taxable income and the contribution of appreciated stock which resulted in favorable tax treatment for the year. A settlement with the Internal Revenue Service was reached during 1997 over a dispute arising from the 1983 purchase of the First National Bank of Mishawaka relating to deduction of core deposit intangibles. Estimated interest due to the IRS of $350,000 was recorded in 1997. State income taxes were $3.60 million in 1997, prior to the tax benefit of $248,000 relating to the distribution on preferred securities of subsidiary trusts. After this benefit, state income taxes were $3.35 million, compared to $3.27 million in 1996 and $2.93 million in 1995. CREDIT EXPERIENCE PROVISION FOR LOAN LOSSES -- The ability of a bank to identify and assess the risk factors affecting its loan portfolio is crucial for profitability. Management follows a credit policy that balances the risk and return on loans and monitors potential credit problems to ensure that they are adequately managed and reserved. The reserve for loan losses is maintained to cover losses that may be incurred in the normal course of lending. The provision made to the reserve is determined by management based on the risk factors affecting the loan portfolio, including general economic conditions, changes to the portfolio mix, and past loan loss experience. The provision for loan losses for 1997 was $6.05 million, compared to $4.65 million in 1996 and $2.76 million in 1995. Net charge-offs of $144,000 were recorded in 1997, compared to net charge-offs of $1.78 million in 1996 and net recoveries of $845,000 in 1995. The reserve for loan losses at December 31, 1997, totaled $35.42 million and was 1.97% of loans, compared to $29.52 million or 2.03% of loans at December 31, 1996, and $27.47 million or 2.18% of loans at December 31, 1995. It is management's opinion that the reserve for loan losses is adequate to absorb anticipated losses in the loan portfolio as of December 31, 1997. NONPERFORMING ASSETS -- 1st Source's policy is to discontinue the accrual of interest on loans on which principal or interest is past due and remains unpaid for 90 days or more, unless the loan is well collateralized and in the process of collection. When a loan is placed on nonaccrual status, any current year accrued interest not collected is reversed and prior year accruals are charged to the reserve for loan losses. Nonperforming assets amounted to $11.44 million at December 31, 1997, compared to $7.77 million at December 31, 1996 and $6.58 million at December 31, 1995. Impaired loans totaled $9.39 million, $8.13 million, and $6.38 million at December 31, 1997, 1996 and 1995, respectively. NONPERFORMING ASSETS AT DECEMBER 31
(Dollars in thousands) 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------ Loans past due over 90 days $ 730 $ 557 $ 274 $ 477 $ 494 - ------------------------------------------------------------------------------------------------ Nonaccrual loans 10,030 6,678 4,893 3,314 3,175 - ------------------------------------------------------------------------------------------------ Restructured loans -- -- -- 133 667 ================================================================================================ TOTAL NONPERFORMING LOANS 10,760 7,235 5,167 3,924 4,336 - ------------------------------------------------------------------------------------------------ Other real estate 335 445 1,359 763 794 - ------------------------------------------------------------------------------------------------ Other assets 341 93 58 13 158 ================================================================================================ TOTAL NONPERFORMING ASSETS $11,436 $7,773 $6,584 $4,700 $5,288 ================================================================================================ Nonperforming assets to loans, net of unearned discount .64% .54% .52% .43% .52% ================================================================================================
CAPITAL RESOURCES 1st Source manages its capital resources to serve its customers, protect its depositors, support growth and provide a fair return to shareholders. As of December 31, 1997, there were 1,165 holders of record of 1st Source common stock. 1st Source's leverage capital ratio increased from 8.48% at December 31, 1996, to 9.98% at December 31, 1997. The substantial increase was due to 1st Source's "Guaranteed Preferred Beneficial Interests in the Company's Subordinated Debentures" - -------- 16 17 1st Source Corporation and Subsidiaries - ------------------------------------------------------------------------------- CAPITAL RESOURCES - CONCLUDED (Cumulative Trust Preferred Securities) inclusion in leveraged capital as allowed by regulations. 1st Source's common stock is traded on the Nasdaq Stock Market under the National Market symbol "SRCE." High and low stock prices and cash dividends paid for the last two years by quarter were:
1997 SALES PRICE Cash 1996 Sales Price Cash ---------------- Dividends ---------------- Dividends COMMON STOCK PRICES HIGH LOW Paid High Low Paid =========================================================================================================== Quarter Ended: March 31 $22 1/2 $17 1/2 $.066 $16 1/2 $15 $.058 - ----------------------------------------------------------------------------------------------------------- June 30 25 19 1/2 .068 16 3/4 15 1/2 .058 - ----------------------------------------------------------------------------------------------------------- September 30 25 3/4 23 1/2 .068 17 15 .058 - ----------------------------------------------------------------------------------------------------------- December 31 30 1/4 24 1/2 .073 18 1/2 16 1/4 .066 =========================================================================================================== The above information gives retroactive recognition to a 10% stock dividend declared January 20, 1998; and a five-for-four stock split declared January 21, 1997. At December 31, 1997, the total market capitalization of 1st Source was approximately $501.7 million.
Leverage Capital Ratio (As a Percent) [GRAPH]
93 94 95 96 97 (8.09) (8.33) (8.44) (8.48) (9.98)
Common Stock Price Range (In Dollars) [GRAPH]
1996 1997 1st 2nd 3rd 4th 1st 2nd 3rd 4th ------------------------------------- ----------------------------------------- High 16 1/2 16 3/4 17 18 1/2 22 1/2 25 25 3/4 30 1/4 Low 15 15 1/2 15 16 1/4 17 1/2 19 1/2 23 1/2 24 1/2 Quarter Ending 15 1/2 15 3/4 16 1/4 17 3/4 21 24 25 1/2 29
Book Value Per Common Share [GRAPH]
93 94 95 96 97 (7.24) (7.48) (8.91) (10.02) (11.26) Book value is not necessarily indicative of the value of 1st Source common stock.
Cash Dividends Per Common Share [GRAPH]
93 94 95 96 97 (.159) (.185) (.208) (.240) (.275)
EFFECTS OF INFLATION -- The results of operations can also be affected by inflation, although it is difficult to measure the precise impact on the various types of income and expense. Interest rates, in particular, are significantly affected by inflation, but neither the timing nor the magnitude of the changes coincide with changes in the consumer price index nor other measures of inflation. Additionally, increases in interest rates, such as those on consumer deposits, lag behind increases in overall rates. This, in turn, affects the composition of sources of funds by reducing core deposit growth and increasing the need for purchased funds. Another significant effect of inflation is on noninterest expenses, which tend to rise during periods of general inflation. - -------- 17 18 CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - -------------------------------------------------------------------------------------------------------
December 31 1997 1996 - ------------------------------------------------------------------------------------------------------- (Dollars in thousands) ASSETS Cash and due from banks $ 90,864 $ 137,588 - ------------------------------------------------------------------------------------------------------- Interest bearing deposits with other banks 1,677 600 - ------------------------------------------------------------------------------------------------------- Federal funds sold 10,000 - - ------------------------------------------------------------------------------------------------------- Investment securities, available-for-sale (amortized cost of $298,439 and $303,177 at December 31, 1997 and 1996, respectively) 299,933 302,602 - ------------------------------------------------------------------------------------------------------- Investment securities, held-to-maturity (fair value of $119,369 and $125,218 at at December 31, 1997 and 1996, respectively) 114,975 120,494 - ------------------------------------------------------------------------------------------------------- Loans, net of unearned discount: Transportation and equipment 752,677 561,042 - ------------------------------------------------------------------------------------------------------- Real estate 568,136 468,109 - ------------------------------------------------------------------------------------------------------- Commercial, financial and agricultural 364,391 335,192 - ------------------------------------------------------------------------------------------------------- Installment 111,577 91,220 - ------------------------------------------------------------------------------------------------------- TOTAL LOANS 1,796,781 1,455,563 - ------------------------------------------------------------------------------------------------------- Less, Reserve for loan losses 35,424 29,516 - ------------------------------------------------------------------------------------------------------- NET LOANS 1,761,357 1,426,047 - ------------------------------------------------------------------------------------------------------- Premises and equipment: Land 4,123 4,167 - ------------------------------------------------------------------------------------------------------- Buildings and improvements 25,868 23,089 - ------------------------------------------------------------------------------------------------------- Furniture and equipment 23,750 20,307 - ------------------------------------------------------------------------------------------------------- Construction in progress 555 1,074 - ------------------------------------------------------------------------------------------------------- TOTAL PREMISES AND EQUIPMENT 54,296 48,637 - ------------------------------------------------------------------------------------------------------- Less, Accumulated depreciation 23,514 20,857 - ------------------------------------------------------------------------------------------------------- NET PREMISES AND EQUIPMENT 30,782 27,780 - ------------------------------------------------------------------------------------------------------- Other assets 108,566 64,656 - ------------------------------------------------------------------------------------------------------- TOTAL ASSETS $2,418,154 $2,079,767 ======================================================================================================= The accompanying notes are a part of the consolidated financial statements.
- -------- 18 19 1st Source Corporation and Subsidiaries - ----------------------------------------------------------------------------------------------------------
December 31 1997 1996 - ---------------------------------------------------------------------------------------------------------- (Dollars in thousands) LIABILITIES Deposits: Noninterest bearing $ 274,906 $ 207,280 - ---------------------------------------------------------------------------------------------------------- Interest bearing 1,616,885 1,426,698 - ---------------------------------------------------------------------------------------------------------- TOTAL DEPOSITS 1,891,791 1,633,978 - ---------------------------------------------------------------------------------------------------------- Short-term borrowings: Federal funds purchased and securities sold under agreements to repurchase 117,987 112,580 - ---------------------------------------------------------------------------------------------------------- Other 117,019 112,283 - ---------------------------------------------------------------------------------------------------------- TOTAL SHORT-TERM BORROWINGS 235,006 224,863 - ---------------------------------------------------------------------------------------------------------- Other liabilities 34,998 30,497 - ---------------------------------------------------------------------------------------------------------- Long-term debt 16,656 18,596 - ---------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 2,178,451 1,907,934 - ---------------------------------------------------------------------------------------------------------- Commitments and contingencies (Notes L, M and P) - ---------------------------------------------------------------------------------------------------------- Guaranteed preferred beneficial interests in the Company's subordinated debentures 44,750 - - ---------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY Common stock; no par value: Authorized 40,000,000 shares; issued 16,147,791 shares in 1997 and 12,936,120 shares in 1996, less unearned shares 5,700 5,700 - ---------------------------------------------------------------------------------------------------------- Capital surplus 69,947 69,947 - ---------------------------------------------------------------------------------------------------------- Retained earnings 124,394 102,399 - ---------------------------------------------------------------------------------------------------------- Cost of common stock in treasury (1997 -- 289,627 shares and 1996 -- 345,622 shares) (6,978) (6,670) - ---------------------------------------------------------------------------------------------------------- Net unrealized appreciation of securities available-for-sale 1,890 457 - ---------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 194,953 171,833 - ---------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,418,154 $2,079,767 ==========================================================================================================
-------- 19 20 CONSOLIDATED STATEMENTS OF INCOME 1st Source Corporation and Subsidiaries - --------------------------------------------------------------------------------------------------------
Year Ended December 31 ---------------------- 1997 1996 1995 - -------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share data) Interest income: Loans $147,899 $124,553 $110,944 - -------------------------------------------------------------------------------------------------------- Investment securities, taxable 16,638 15,121 15,184 - -------------------------------------------------------------------------------------------------------- Investment securities, tax-exempt 8,187 8,152 7,650 - -------------------------------------------------------------------------------------------------------- Total Investment Securities 24,825 23,273 22,834 - -------------------------------------------------------------------------------------------------------- Other 592 994 1,337 - -------------------------------------------------------------------------------------------------------- TOTAL INTEREST INCOME 173,316 148,820 135,115 - -------------------------------------------------------------------------------------------------------- Interest expense: Deposits 73,150 64,214 56,185 - -------------------------------------------------------------------------------------------------------- Short-term borrowings 13,014 7,843 6,938 - -------------------------------------------------------------------------------------------------------- Long-term debt 1,160 1,372 1,823 - -------------------------------------------------------------------------------------------------------- TOTAL INTEREST EXPENSE 87,324 73,429 64,946 - -------------------------------------------------------------------------------------------------------- NET INTEREST INCOME 85,992 75,391 70,169 - -------------------------------------------------------------------------------------------------------- Provision for loan losses 6,052 4,649 2,757 - -------------------------------------------------------------------------------------------------------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 79,940 70,742 67,412 - -------------------------------------------------------------------------------------------------------- Noninterest income: Trust fees 7,312 6,732 6,639 - -------------------------------------------------------------------------------------------------------- Service charges on deposit accounts 5,380 4,829 4,934 - -------------------------------------------------------------------------------------------------------- Loan servicing and sale income 9,636 5,405 2,792 - -------------------------------------------------------------------------------------------------------- Equipment rental income 6,950 2,741 460 - -------------------------------------------------------------------------------------------------------- Other income 6,840 5,541 4,497 - -------------------------------------------------------------------------------------------------------- Investment securities and other investment gains (losses) (462) 231 170 - -------------------------------------------------------------------------------------------------------- TOTAL NONINTEREST INCOME 35,656 25,479 19,492 - -------------------------------------------------------------------------------------------------------- Noninterest expense: Salaries and employee benefits 41,755 36,058 32,567 - -------------------------------------------------------------------------------------------------------- Net occupancy expense 4,545 4,696 3,765 - -------------------------------------------------------------------------------------------------------- Furniture and equipment expense 6,758 5,873 5,114 - -------------------------------------------------------------------------------------------------------- Depreciation - leased equipment 4,971 1,800 489 - -------------------------------------------------------------------------------------------------------- Business development and marketing expense 3,461 2,587 2,338 - -------------------------------------------------------------------------------------------------------- Other expense 11,487 9,608 10,588 - -------------------------------------------------------------------------------------------------------- TOTAL NONINTEREST EXPENSE 72,977 60,622 54,861 - -------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES AND SUBSIDIARY TRUST DISTRIBUTIONS 42,619 35,599 32,043 - -------------------------------------------------------------------------------------------------------- Income taxes 14,392 12,396 11,001 - -------------------------------------------------------------------------------------------------------- Distribution on preferred securities of subsidiary trusts, net of income tax benefit of $1,184 1,738 - - - -------------------------------------------------------------------------------------------------------- NET INCOME $ 26,489 $ 23,203 $ 21,042 ======================================================================================================== BASIC NET INCOME PER COMMON SHARE $ 1.54 $ 1.35 $ 1.22 ======================================================================================================== DILUTED NET INCOME PER COMMON SHARE $ 1.49 $ 1.32 $ 1.19 ======================================================================================================== The accompanying notes are a part of the consolidated financial statements.
- -------- 20 21 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 1st Source Corporation and Subsidiaries - ------------------------------------------------------------------------------------------------------------------------------
Net Unrealized Appreciation Cost of (Depreciation) Common of Securities Common Capital Retained Stock Available- Total Stock Surplus Earnings in Treasury For-Sale - ------------------------------------------------------------------------------------------------------------------------------ (Dollars in thousands, except per share data) BALANCE AT JANUARY 1, 1995 $129,082 $5,170 $45,788 $ 90,444 $(4,036) $(8,284) ============================================================================================================================== Net income 21,042 - - 21,042 - - - ------------------------------------------------------------------------------------------------------------------------------ Cost of 146,575 shares of common stock acquired for treasury (3,363) - - - (3,363) - - ------------------------------------------------------------------------------------------------------------------------------ Cash dividends ($.208 per share) (3,594) - - (3,594) - - - ------------------------------------------------------------------------------------------------------------------------------ 5% common stock dividend ($13 paid in cash in lieu of fractional shares) (13) 259 10,549 (10,821) - - - ------------------------------------------------------------------------------------------------------------------------------ Three-for-two common stock split ($5 paid in cash in lieu of fractional shares) (5) - - (5) - - - ------------------------------------------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) 8,664 - - - - 8,664 - ------------------------------------------------------------------------------------------------------------------------------ Other 788 - - (114) 902 - - ------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1995 152,601 5,429 56,337 96,952 (6,497) 380 ============================================================================================================================== Net income 23,203 - - 23,203 - - - ------------------------------------------------------------------------------------------------------------------------------ Cost of 67,267 shares of common stock acquired for treasury (1,488) - - - (1,488) - - ------------------------------------------------------------------------------------------------------------------------------ Cash dividends ($.240 per share) (4,123) - - (4,123) - - - ------------------------------------------------------------------------------------------------------------------------------ 5% common stock dividend ($12 paid in cash in lieu of fractional shares) (11) 271 13,610 (13,892) - - - ------------------------------------------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) 77 - - - - 77 - ------------------------------------------------------------------------------------------------------------------------------ Other 1,574 - - 259 1,315 - - ------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1996 171,833 5,700 69,947 102,399 (6,670) 457 ============================================================================================================================== NET INCOME 26,489 - - 26,489 - - - ------------------------------------------------------------------------------------------------------------------------------ COST OF 179,025 SHARES OF COMMON STOCK ACQUIRED FOR TREASURY (5,023) - - - (5,023) - - ------------------------------------------------------------------------------------------------------------------------------ CASH DIVIDENDS ($.275 PER SHARE) (4,723) - - (4,723) - - - ------------------------------------------------------------------------------------------------------------------------------ FIVE-FOR-FOUR COMMON STOCK SPLIT ($8 PAID IN CASH IN LIEU OF FRACTIONAL SHARES) (8) - - (8) - - - ------------------------------------------------------------------------------------------------------------------------------ CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) 1,433 - - - - 1,433 - ------------------------------------------------------------------------------------------------------------------------------ OTHER 4,952 - - 237 4,715 - - ------------------------------------------------------------------------------------------------------------------------------ BALANCE AT DECEMBER 31, 1997 $194,953 $5,700 $69,947 $124,394 $(6,978) $ 1,890 ============================================================================================================================== The accompanying notes are a part of the consolidated financial statements.
-------- 21 22 CONSOLIDATED STATEMENTS OF CASH FLOWS 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------------------------------------------
Year Ended December 31 ---------------------- 1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) OPERATING ACTIVITIES: Net income $ 26,489 $ 23,203 $ 21,042 - ------------------------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 6,052 4,649 2,757 - ------------------------------------------------------------------------------------------------------------------- Depreciation of premises and equipment 8,372 4,363 2,617 - ------------------------------------------------------------------------------------------------------------------- Amortization of investment security premiums and accretion of discounts, net 817 739 957 - ------------------------------------------------------------------------------------------------------------------- Deferred income taxes 4,839 (1,147) (2,661) - ------------------------------------------------------------------------------------------------------------------- Realized investment securities (gains) losses 462 (231) (170) - ------------------------------------------------------------------------------------------------------------------- Increase in interest receivable (1,836) (573) (2,120) - ------------------------------------------------------------------------------------------------------------------- Increase in interest payable 3,660 120 3,946 - ------------------------------------------------------------------------------------------------------------------- Other (5,511) (6,069) 5,642 - ------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 43,344 25,054 32,010 - ------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Proceeds from sales and maturities of investment securities 159,564 116,813 111,307 - ------------------------------------------------------------------------------------------------------------------- Purchase of investment securities (144,491) (144,286) (144,422) - ------------------------------------------------------------------------------------------------------------------- Net (increase) decrease in short-term investments (11,077) 2,346 3,348 - ------------------------------------------------------------------------------------------------------------------- Loans sold or participated to others 154,609 156,727 49,560 - ------------------------------------------------------------------------------------------------------------------- Net increase in loans made to customers and principal collections on loans (495,632) (355,104) (207,012) - ------------------------------------------------------------------------------------------------------------------- Net increase in leased assets (16,585) (4,984) (4,392) - ------------------------------------------------------------------------------------------------------------------- Funding of bank-owned life insurance policies (20,000) - - - ------------------------------------------------------------------------------------------------------------------- Purchase of premises and equipment (4,455) (6,646) (5,271) - ------------------------------------------------------------------------------------------------------------------- Other (13,014) (2,115) 577 - ------------------------------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (391,081) (237,249) (196,305) - ------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Net increase (decrease) in demand deposits, NOW accounts and savings accounts 46,384 57,688 (23,310) - ------------------------------------------------------------------------------------------------------------------- Net increase in certificates of deposit 211,429 134,540 163,722 - ------------------------------------------------------------------------------------------------------------------- Net increase in short-term borrowings 10,143 71,884 52,414 - ------------------------------------------------------------------------------------------------------------------- Proceeds from issuance of long-term debt 1,559 123 10,000 - ------------------------------------------------------------------------------------------------------------------- Payments on long-term debt (3,499) (3,346) (16,265) - ------------------------------------------------------------------------------------------------------------------- Proceeds from issuance of cumulative trust preferred securities 44,750 - - - ------------------------------------------------------------------------------------------------------------------- Acquisition of treasury stock (5,023) (1,488) (3,363) - ------------------------------------------------------------------------------------------------------------------- Cash dividends (4,723) (4,123) (3,594) - ------------------------------------------------------------------------------------------------------------------- Other (7) (12) (18) - ------------------------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY FINANCING ACTIVITIES 301,013 255,266 179,586 - ------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (46,724) 43,071 15,291 - ------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, beginning of year 137,588 94,517 79,226 - ------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 90,864 $ 137,588 $ 94,517 =================================================================================================================== The accompanying notes are a part of the consolidated financial statements.
- -------- 22 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE A -- ACCOUNTING POLICIES The principal line of business of 1st Source Corporation ("1st Source") and subsidiaries is banking and closely related activities. PRINCIPLES OF CONSOLIDATION -- The financial statements consolidate 1st Source and its subsidiaries (principally 1st Source Bank and Trustcorp Mortgage Company). All significant intercompany balances and transactions have been eliminated. For purposes of the parent company only financial information presented in Note Q, investments in subsidiaries are carried at 1st Source's equity in the underlying net assets. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates. INVESTMENT SECURITIES -- Securities that may be sold as part of 1st Source's asset/liability or liquidity management or in response to or in anticipation of changes in interest rates and resulting prepayment risk, or for other similar factors, are classified as available-for-sale and carried at fair market value. Unrealized holding gains and losses on securities available-for-sale are reported net of related deferred income taxes as a separate component of shareholders' equity. Securities that 1st Source has the ability and positive intent to hold to maturity are classified as held-to-maturity and carried at amortized cost. Trading securities are carried at fair market value with unrealized holding gains and losses included in earnings. There were no trading securities at December 31, 1997 or 1996, respectively. Realized gains and losses on the sales of all securities are reported in earnings and computed using the specific identification cost basis. LOANS -- Loans are reported at the principal amount outstanding, net of unearned income. Loans identified as held-for-sale are carried at the lower of cost or market determined on an aggregate basis. Loans held for sale totaled $130.0 million and $102.4 million at December 31, 1997 and 1996, respectively. On January 1, 1997, 1st Source adopted Statement of Financial Accounting Standards (SFAS) No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The Statement establishes accounting and reporting standards to assist in determining when to recognize or derecognize financial assets and liabilities in the financial statements after a transfer of financial assets has occurred. As a result of adopting SFAS No. 125, 1st Source recognized $800,000 of aircraft loan securitization gains in 1997. No servicing assets have been recorded as a result of loan securitizations as of December 31, 1997. SERVICING RIGHTS -- The costs of purchasing the rights to service mortgage loans originated by others are deferred and amortized as reductions of mortgage servicing fee income over the estimated servicing period in proportion to the estimated servicing income to be received. Gains and losses on the sale of mortgage servicing rights are recognized as non-interest income in the period in which such rights are sold on a servicing released basis. SFAS No. 125 also supersedes, but generally retains, the requirements of SFAS No. 122, "Accounting for Mortgage Servicing Rights," which the Company adopted effective January 1996. Both statements require companies that intend to sell originated or purchased loans and retain the related servicing rights, to allocate a portion of the total costs of the loans to servicing rights, based on estimated fair value. Fair value is estimated based on market prices, when available, or the present value of future net servicing income, adjusted for such factors as discount and prepayment rates. In addition, SFAS No. 125 eliminates the distinction between normal and excess servicing to the extent the servicing fee does not exceed that specified in the contract. As of December 31, 1997, and 1996, $11.6 million and $8.5 million, respectively, of mortgage servicing rights have been capitalized. As of these dates, they had a fair value of $21.0 million and $20.2 million respectively. 1st Source's pretax income was increased in 1996 by approximately $1.4 million, net of certain adjustments, including amortization, as a result of adopting the above. Mortgage servicing rights are being amortized using a method which approximates the effective yield method and for the years ended December 31, 1997, and 1996, $2.72 million and $2.68 million of amortization expense has been recognized. SFAS No. 125 also requires 1st Source to assess its capitalized servicing rights for impairment based on their current fair value. 1st Source disaggregates its servicing portfolio based on loan type and interest rate, the predominant risk characteristics of the underlying loans. There was no valuation allowance associated with capitalized mortgage servicing rights at December 31, 1997. -------- 23 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE A -- ACCOUNTING POLICIES -- CONTINUED REVENUE RECOGNITION -- Interest on loans is included in interest income on the accrual method over the terms of the loans based upon principal balances outstanding. The accrual of interest on loans is discontinued when a loan becomes contractually delinquent for 90 days, except for installment loans where payments are being received regularly and mortgage loans, which are placed on nonaccrual at the time the loan is placed in foreclosure. When interest accruals are discontinued, interest credited to income in the current year is reversed, and interest accrued in the prior year is charged to the reserve for loan losses. Management may elect to continue the accrual of interest when the net realizable value of collateral is sufficient to cover the principal and accrued interest. Certain loan origination and commitment fees and certain direct loan origination costs are deferred and the net amount amortized to interest income generally over the contractual life of the related loan or commitment. RESERVE FOR LOAN LOSSES -- A loan is considered impaired, based on current information and events, if it is probable that 1st Source will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. The measurement of impaired loans is generally based on the present value of expected future cash flows discounted at the historical effective interest rate, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral. The provision for loan losses charged to expense is based upon the actual net loan losses incurred as determined by credit loss experience, the evaluation of potential losses in the portfolio, the evaluation of impaired loans, plus an amount for such other factors which, in management's judgment, deserve recognition in estimating possible loan losses. Loans are charged against the reserve for loan losses when deemed uncollectible. PREMISES AND EQUIPMENT -- Premises and equipment are stated at cost, less accumulated depreciation. The provision for depreciation is computed generally by the straight-line method, primarily with useful lives of 5, 7, 15 and 31 1/2 years. LEASED ASSETS -- 1st Source finances various types of equipment and automobiles under leases principally classified as operating leases. The assets are grouped with Other assets on the balance sheet and are being depreciated on a straight-line method over the life of the lease. Operating leases totaled $39.3 million and $20.3 million at December 31, 1997 and 1996, respectively. Accumulated depreciation on those operating leases was $7.3 million and $4.3 million at the end of 1997 and 1996, respectively. TRUST FEES -- Trust fees are recognized on the accrual basis. INCOME TAXES -- Deferred income taxes are determined under the liability method. The net deferred tax assets are comprised of the tax effect of net temporary differences related principally to differing methods of accounting for loan losses. NET INCOME PER COMMON SHARE -- In February 1997, the Financial Accounting Standards Board issued SFAS No. 128 "Earnings per Share." This Statement establishes standards for computing and presenting earnings per share, simplifies the standards for computation and makes the calculation comparable to international accounting standards. Under SFAS No. 128, "primary earnings per share" was replaced by "basic" earnings per share and requires both "basic" and "diluted" earnings per share to be presented on the face of the income statement. SFAS No. 128 is effective for periods ending after December 15, 1997, and restatement of prior period earnings must occur upon adoption. Basic earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding which were as follows (in thousands): 1997, 17,214; 1996, 17,176; and 1995, 17,284. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock outstanding plus the dilutive effect of outstanding stock options. The weighted average number of common shares, increased for the dilutive effect of stock options used in the computation of diluted earnings per share were as follows (in thousands): 1997, 17,766; 1996, 17,597; and 1995, 17,637. The computations of the weighted average number of common shares used for the determination of both basic and diluted earnings per share give retroactive recognition to a 10% stock dividend declared January 20, 1998, payable February 13, 1998, to shareholders of record on February 5, 1998. FUNDS HELD IN TRUST FOR INVESTORS AND MORTGAGORS -- As of December 31, 1997 and 1996, serviced loans which were owned by investors aggregated $1.35 billion and $1.28 billion, respectively. Funds held in trust for the payment of principal, interest, taxes and insurance premiums applicable to mortgage loans being serviced for others, aggregating approximately $22.5 million, are included in the - -------- 24 25 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE A -- ACCOUNTING POLICIES -- CONCLUDED December 31, 1997, consolidated statement of financial condition as they are on deposit in 1st Source Bank. Funds held in trust for investors and mortgagors aggregated $18.0 million at December 31, 1996, when the funds were on deposit in other banks and not included in the consolidated statement of financial condition. CASH FLOW INFORMATION -- For purposes of the consolidated and parent company only statements of cash flows, 1st Source considers cash and due from banks as cash and cash equivalents. Cash paid during the years ended December 31, 1997, 1996 and 1995, for interest and for income taxes was $83.7 million and $10.7 million, $73.3 million and $14.9 million, and $61.0 million and $12.9 million, respectively. OFF-BALANCE SHEET FINANCIAL INVESTMENTS -- 1st Source Bank and Trustcorp Mortgage Company enter into interest rate swap agreements as part of their interest rate risk management strategies. These instruments are accounted for under the accrual basis of accounting, whereby the income or expense is recorded as a component of interest income. If a swap is terminated, the resulting gain or loss is deferred and amortized over the remaining life of the off-balance sheet investment product. NEW ACCOUNTING PRONOUNCEMENTS -- In June 1997, the Financial Accounting Standards Board issued SFAS No. 130 "Reporting Comprehensive Income." The Statement establishes standards for the reporting and disclosure of comprehensive income and its components in a full set of general purpose financial statements. Presently, the only component of comprehensive income not included in net income is unrealized gains or losses on available-for-sale investment securities. The Statement is effective for fiscal years beginning after December 15, 1997, with reclassification of the financial statements for earlier periods required for comparative purposes. 1st Source plans to adopt the Statement in 1998. In June 1997, the Financial Accounting Standards Board issued SFAS No. 131 "Disclosure about Segments of an Enterprise and Related Information." The Statement changes the manner in which public companies report segment information in annual reports and requires companies to report selected segment information in interim financial reports. Companies will be required to report financial and descriptive information about the company's operating segments. The Statement is effective for fiscal years beginning after December 15, 1997, with reclassification of the financial statements for earlier periods required for comparative purposes. In the year of adoption, companies will not be required to disclose interim period information. 1st Source plans to adopt the Statement in 1998. RECLASSIFICATIONS -- Certain amounts in the 1995 and 1996 consolidated financial statements have been reclassified to conform with the 1997 presentation. These reclassifications had no effect on total assets, shareholders' equity or net income as previously reported. - -------------------------------------------------------------------------------- NOTE B -- FAIR VALUES OF FINANCIAL INSTRUMENTS The fair values of 1st Source's financial instruments as of December 31, 1997 and 1996, are summarized in the following table. The following methods and assumptions were used by 1st Source in estimating the fair value of its financial instruments: CASH AND CASH EQUIVALENTS -- The carrying values reported in the consolidated statements of financial condition for cash and due from banks, interest bearing deposits with other banks and federal funds sold approximate their fair values. INVESTMENT SECURITIES -- Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are estimated based on quoted market prices of comparable investments. LOANS -- For variable rate loans that reprice frequently and with no significant change in credit risk and for loans held for sale, fair values are based on carrying values. The fair values for certain real estate loans (e.g., one-to-four single family residential mortgage 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 of all other loans (e.g., commercial loans, transportation and equipment loans, and installment loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. DEPOSITS -- The fair values for all deposits other than time deposits are equal to the amounts payable on demand (the carrying value). Fair values of variable rate time deposits are equal to their carrying values. Fair values for fixed rate time deposits are estimated using discounted cash flow analyses using interest rates currently being offered for deposits with similar remaining maturities. -------- 25 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE B -- FAIR VALUES OF FINANCIAL INSTRUMENTS -- CONCLUDED SHORT-TERM BORROWINGS -- The carrying values of federal funds purchased, securities sold under repurchase agreements and other short-term borrowings approximate their fair values. LONG-TERM DEBT -- The fair values of 1st Source's long-term debt are estimated using discounted cash flow analyses, based on 1st Source's current estimated incremental borrowing rates for similar types of borrowing arrangements. GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE COMPANY'S SUBORDINATED DEBENTURES (CUMULATIVE TRUST PREFERRED SECURITIES) -- Fair values are based on quoted market prices. GUARANTEES AND LOAN COMMITMENTS -- Contract and fair values for certain of 1st Source's off-balance-sheet financial instruments (guarantees and loan commitments) are estimated based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing. INTEREST RATE SWAPS -- Fair values for interest rate swaps are based on the net amount necessary to currently settle the transaction. LIMITATIONS -- Fair value estimates are made at a discrete point in time based on relevant market information and information about the financial instruments. Because no market exists for a significant portion of 1st Source's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other such factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. In addition, the fair value estimates are based on existing on and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. For example, 1st Source has a substantial annual trust department net fee income. The trust department is not considered a financial instrument and its value has not been incorporated into the fair value estimates. Other significant assets and liabilities that are not considered financial instruments include the mortgage banking operation, premises and equipment and other assets. In addition, for investment and mortgage-backed securities, the income tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates. Also, the fair value estimates for deposits do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market.
Carrying Carrying or Contract Fair or Contract Fair Value Value Value Value -------------------------------------------------- 1997 1996 - ------------------------------------------------------------------------------------------------------- (Dollars in thousands) ASSETS: Cash and due from banks $ 90,864 $ 90,864 $ 137,588 $ 137,588 - ------------------------------------------------------------------------------------------------------- Interest bearing deposits with other banks 1,677 1,677 600 600 - ------------------------------------------------------------------------------------------------------- Federal funds sold 10,000 10,000 - - - ------------------------------------------------------------------------------------------------------- Investment securities, available-for-sale 299,933 299,933 302,602 302,602 - ------------------------------------------------------------------------------------------------------- Investment securities, held-to-maturity 114,975 119,369 120,494 125,218 - ------------------------------------------------------------------------------------------------------- Loans, net of reserve for loan losses 1,761,357 1,788,005 1,426,047 1,444,917 - ------------------------------------------------------------------------------------------------------- LIABILITIES: Deposits 1,891,791 1,896,130 1,633,978 1,640,996 - ------------------------------------------------------------------------------------------------------- Short-term borrowings 235,006 235,006 224,863 224,863 - ------------------------------------------------------------------------------------------------------- Long-term debt 16,656 16,807 18,596 18,526 - ------------------------------------------------------------------------------------------------------- Guaranteed preferred beneficial interests in the Company's subordinated debentures 44,750 46,726 - - - ------------------------------------------------------------------------------------------------------- OFF-BALANCE-SHEET INSTRUMENTS - (392) - (990) ======================================================================================================= Represents estimated cash outflows required to currently settle the obligations at current market rates.
- -------- 26 27 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE C -- RESTRICTIONS ON CASH AND DUE FROM BANKS 1st Source Bank is required to maintain reserve balances with the Federal Reserve Bank. The average amount of those reserve balances for the year ended December 31, 1997, was approximately $8.3 million. Under available line of credit agreements, 1st Source may borrow up to $3 million. At December 31, 1997, there were no outstanding borrowings under these lines, which were assigned to support commercial paper borrowings. - -------------------------------------------------------------------------------- NOTE D -- INVESTMENT SECURITIES The amortized cost and estimated aggregate fair value of securities classified as available-for-sale and held-to-maturity at December 31, 1997, are as follows:
Available-For-Sale ------------------ Gross Gross Estimated Unrealized Unrealized Aggregate Amortized Holding Holding Fair Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) EQUITY SECURITIES: Marketable securities $ 14,137 $1,540 $ - $ 15,677 - ------------------------------------------------------------------------------------------------------------------- Other equity securities 2,165 - - 2,165 - ------------------------------------------------------------------------------------------------------------------- Total equity securities 16,302 1,540 - 17,842 - ------------------------------------------------------------------------------------------------------------------- DEBT SECURITIES: United States Treasury and agency securities 158,045 354 (77) 158,322 - ------------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions 44,483 438 (20) 44,901 - ------------------------------------------------------------------------------------------------------------------- Debt securities issued by foreign governments 2,175 1,686 (1) 3,860 - ------------------------------------------------------------------------------------------------------------------- Corporate securities 4,275 7 (1) 4,281 - ------------------------------------------------------------------------------------------------------------------- Mortgage-backed securities 73,433 253 (1,086) 72,600 - ------------------------------------------------------------------------------------------------------------------- Other debt securities 1,316 84 - 1,400 - ------------------------------------------------------------------------------------------------------------------- Total debt securities 283,727 2,822 (1,185) 285,364 - ------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES $300,029 $4,362 $(1,185) $303,206 =================================================================================================================== Held-To-Maturity ---------------- Gross Gross Estimated Unrealized Unrealized Aggregate Amortized Holding Holding Fair Cost Gains Losses Value - ------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) EQUITY SECURITIES: Other equity securities $ 11,648 $ - $ - $ 11,648 - ------------------------------------------------------------------------------------------------------------------- DEBT SECURITIES: Obligations of states and political subdivisions 103,327 4,395 (1) 107,721 - ------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES $114,975 $4,395 $(1) $119,369 ===================================================================================================================
-------- 27 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE D -- INVESTMENT SECURITIES -- CONTINUED The amortized cost and estimated aggregate fair value of debt securities classified as available-for-sale and held-to-maturity at December 31, 1997, by contractual maturity (except for mortgage-backed securities), are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Available-For-Sale Held-To-Maturity ------------------ ---------------- Estimated Estimated Aggregate Aggregate Amortized Fair Amortized Fair Cost Value Cost Value - ------------------------------------------------------------------------------------------------- (Dollars in thousands) Due in one year or less $ 87,054 $ 87,099 $ 9,855 $ 9,937 - ------------------------------------------------------------------------------------------------- Due after one year through five years 106,314 106,845 38,801 40,045 - ------------------------------------------------------------------------------------------------- Due after five years through ten years 9,896 10,083 47,832 50,679 - ------------------------------------------------------------------------------------------------- Due after ten years 7,030 8,737 6,839 7,060 - ------------------------------------------------------------------------------------------------- 210,294 212,764 103,327 107,721 - ------------------------------------------------------------------------------------------------- Mortgage-backed securities 73,433 72,600 - - - ------------------------------------------------------------------------------------------------- TOTAL $283,727 $285,364 $103,327 $107,721 =================================================================================================
The amortized cost and estimated aggregate fair value of securities classified as available-for-sale and held-to-maturity at December 31, 1996, are as follows:
Available-For-Sale ------------------ Gross Gross Estimated Unrealized Unrealized Aggregate Amortized Holding Holding Fair Cost Gains Losses Value - -------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) EQUITY SECURITIES: Marketable securities $ 1,071 $ 549 $ (132) $ 1,488 - -------------------------------------------------------------------------------------------------------------------- Other equity securities 1,335 - - 1,335 - -------------------------------------------------------------------------------------------------------------------- Total equity securities 2,406 549 (132) 2,823 - -------------------------------------------------------------------------------------------------------------------- DEBT SECURITIES: United States Treasury and agency securities 162,639 272 (313) 162,598 - -------------------------------------------------------------------------------------------------------------------- Obligations of states and political subdivisions 36,398 206 (63) 36,541 - -------------------------------------------------------------------------------------------------------------------- Debt securities issued by foreign governments 2,115 1,343 - 3,458 - -------------------------------------------------------------------------------------------------------------------- Corporate securities 4,613 7 - 4,620 - -------------------------------------------------------------------------------------------------------------------- Mortgage-backed securities 95,250 387 (1,566) 94,071 - -------------------------------------------------------------------------------------------------------------------- Other debt securities 1,346 78 - 1,424 - -------------------------------------------------------------------------------------------------------------------- Total debt securities 302,361 2,293 (1,942) 302,712 - -------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES $304,767 $2,842 $(2,074) $305,535 ====================================================================================================================
- -------- 28 29 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE D -- INVESTMENT SECURITIES -- CONCLUDED
Held-To-Maturity ---------------- Gross Gross Estimated Unrealized Unrealized Aggregate Amortized Holding Holding Fair Cost Gains Losses Value - -------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) EQUITY SECURITIES: Other equity securities $ 6,992 $ - $ - $ 6,992 - -------------------------------------------------------------------------------------------------------------------- DEBT SECURITIES: Obligations of states and political subdivisions 113,502 4,769 (45) 118,226 - -------------------------------------------------------------------------------------------------------------------- Commercial paper 21,488 - - 21,488 - -------------------------------------------------------------------------------------------------------------------- Total debt securities 134,990 4,769 (45) 139,714 - -------------------------------------------------------------------------------------------------------------------- TOTAL INVESTMENT SECURITIES $141,982 $4,769 $(45) $146,706 ====================================================================================================================
Other equity securities classified as held-to-maturity at December 31, 1997 and 1996, include securities such as Federal Reserve Bank and Federal Home Loan Bank stock, which are not traded on established exchanges and have only redemption capabilities. Fair values for such equity securities are considered to approximate cost. Debt securities issued by foreign governments (classified as available-for-sale) with an amortized cost of $1.59 million and estimated aggregate fair values of $3.27 million and $2.93 million at December 31, 1997 and 1996, respectively, and commercial paper (classified as held-to-maturity) with an amortized cost and estimated aggregate fair value of $21.5 million at December 31, 1996, are included in the above debt securities, but are classified as loans in the accompanying 1997 and 1996 consolidated statements of financial condition. 1st Source had no trading securities as of December 31, 1997 and 1996. The following represents the segregation of cash flows between securities available-for-sale and held-to-maturity:
1997 1996 1995 ----------------------------------------------------------------------------------------------- Available- Held-To- Available- Held-To- Available- Held-To- For-Sale Maturity Total For-Sale Maturity Total For-Sale Maturity Total - --------------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Purchase of securities $139,534 $4,957 $144,491 $143,146 $1,140 $144,286 $105,175 $39,247 $144,422 - --------------------------------------------------------------------------------------------------------------------------------- Proceeds from sales of securities 16,684 - 16,684 207 - 207 33,491 591 34,082 - --------------------------------------------------------------------------------------------------------------------------------- Proceeds from maturities and prepayments of securities 133,051 9,829 142,880 110,233 6,373 116,606 60,879 16,346 77,225 =================================================================================================================================
Gross gains of $514,367 and gross losses of $396,500, were realized during 1995, on the sales of securities available-for-sale. Gross gains of $23,800 were realized during 1995 and gross losses of $324,037 were realized during 1997 on the sales of securities held-to-maturity. The $324,037 gross loss was due to the write-off of a bankrupt venture capital investment. At December 31, 1997 and 1996, investment securities with carrying values of $210.1 million and $240.5 million, respectively, were pledged as collateral to secure government, public and trust deposits and for other purposes. The mortgage-backed securities held by 1st Source consist primarily of FNMA, GNMA and FHLMC pass-through certificates which are guaranteed by those respective agencies of the United States government. - -------------------------------------------------------------------------------- NOTE E -- LOANS TO RELATED PARTIES 1st Source and its subsidiaries have extended loans to officers and directors of 1st Source and its subsidiaries and to their associates. The aggregate dollar amount of these loans was $12.92 million and $14.27 million at December 31, 1997 and 1996, respectively. During 1997, $8.03 million of new loans were made and repayments and other reductions totaled $9.38 million. -------- 29 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE F -- RESERVE FOR LOAN LOSSES Changes in the reserve for loan losses for each of the three years ended December 31 were as follows:
1997 1996 1995 - --------------------------------------------------------------------------------------------------- (Dollars in thousands) Balance, beginning year $29,516 $27,470 $23,868 - --------------------------------------------------------------------------------------------------- Provision for loan losses 6,052 4,649 2,757 - --------------------------------------------------------------------------------------------------- Net (charge-offs) recoveries, net of recoveries of $1,266 in 1997 and $1,507 in 1996, and charge-offs of $1,990 in 1995 (144) (1,779) 845 - --------------------------------------------------------------------------------------------------- Recaptured reserve due to loan securitization - (824) - - --------------------------------------------------------------------------------------------------- BALANCE, END OF YEAR $35,424 $29,516 $27,470 ===================================================================================================
At December 31, 1997 and 1996, loans amounting to $10.03 million and $6.68 million, respectively, substantially all of which are collateralized, are considered to be nonaccrual or restructured loans. Interest income for the years ended December 31, 1997, 1996 and 1995, would have increased by approximately $786,000, $533,000, and $383,000, respectively, if these loans earned interest at their full contract rate. As of December 31, 1997 and 1996, impaired loans totaled $9.39 million and $8.13 million, respectively, of which $1.14 million and $5.78 million had corresponding specific reserves for loan losses totaling $0.61 million and $1.52 million, respectively. The remaining balances of impaired loans had no specific reserves for loan losses associated with them. The vast majority of the impaired loans are nonaccrual loans; interest is not recognized on nonaccrual loans subsequent to the date the loan is placed in nonaccrual status. While a loan is classified as nonaccrual and the future collectibility of the recorded loan balance is doubtful, collections on interest and principal are generally applied as a reduction to principal outstanding. Interest on the remainder of the impaired loans is recognized on the accrual basis. For 1997 and 1996, the average recorded investment in impaired loans was $9.46 million and $9.41 million, respectively, and interest income recognized on impaired loans totaled $376,000 and $464,000, respectively. - -------------------------------------------------------------------------------- NOTE G -- LONG-TERM DEBT Details of long-term debt are as follows:
December 31 1997 1996 - -------------------------------------------------------------------------------------------------- (Dollars in thousands) Term loan (7.4%) $10,000 $10,000 - -------------------------------------------------------------------------------------------------- Subordinated capital notes (5.93%) 5,075 5,345 - -------------------------------------------------------------------------------------------------- Term loan (6.225%) - 2,800 - -------------------------------------------------------------------------------------------------- Federal Home Loan Bank borrowings (5.54% - 6.98%) 956 390 - -------------------------------------------------------------------------------------------------- Other 625 61 - -------------------------------------------------------------------------------------------------- TOTAL LONG-TERM DEBT $16,656 $18,596 ==================================================================================================
Annual maturities of long-term debt at December 31, 1997 are as follows (in thousands): 1998, $212; 1999, $2,199; 2000, $156; 2001, $6; and, 2002, $13,101. The $10.0 million term loan has a fixed interest rate of 7.4% payable quarterly with principal due at maturity, October 1, 2002. The Term Loan Agreement contains, among other provisions, a make-whole provision for early extinguishment of debt, and certain covenants relating to existence and mergers, capital structure and financial requirements. The subordinated capital notes were issued in conjunction with a 1992 acquisition and include $1.98 million due June 18, 1999, and $3.095 million due June 18, 2002. The interest rate on these notes is adjusted monthly and was 5.93% at December 31, 1997. The notes are callable in whole or in part by 1st Source at par value. The notes are unsecured and are subordinated to the claims of depositors and other creditors of 1st Source Bank. Subsequent to December 31, 1997, $3.93 million of these notes were redeemed. At December 31, 1997, the Federal Home Loan Bank borrowings aggregating $956,455 represent a source of funding for certain residential mortgage activities and consist of four fixed rate notes with interest rates ranging from 5.54% to 6.98% and maturities ranging from 2003 to 2017. These notes, as well as $50 million in short-term Federal Home Loan Bank borrowings, are collateralized by $81.5 million of certain residential mortgage loans. - -------- 30 31 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE H -- COMMON STOCK Effective January 1, 1996, 1st Source adopted SFAS No. 123 "Accounting for Stock-Based Compensation" on a disclosure basis only. The disclosure requirements include reporting the pro forma effect on net income and net income per share of compensation expense that is attributable to the fair value of stock options and other stock-based compensation that have been issued to employees under the Stock Option Plans and the Employee Stock Purchase Plan. 1st Source will continue to apply APB No. 25 in accounting for these plans. The Special Long-Term Incentive Award Plan, the Restricted Stock Award Plan and the Executive Incentive Award Plan are already being accounted for as compensatory plans in accordance with the provisions of SFAS No. 123. Compensation cost that has been charged against income for these plans was $1.83 million, $1.52 million, and $1.93 million for the years ended December 31, 1997, 1996 and 1995, respectively. An income tax benefit of $1.8 million arising from the exercise of stock options was recorded in shareholders' equity during 1997. STOCK OPTION PLANS 1st Source's incentive stock option plans include the 1992 Stock Option Plan (the "1992 Plan") and a certain other stock option agreement which became effective January 1, 1992. As of December 31, 1997, an aggregate of 1,940,823 shares of common stock are reserved for issuance under the above plans. Under the 1992 Plan, the exercise price of each option equals the market price of 1st Source stock on the date of grant and an option's term is 10 years. Options under the 1992 Plan generally vest in one to five years from date of grant. Options are granted on a discretionary basis by the Executive Compensation Committee (the "Committee") of the 1st Source Board of Directors. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants in 1997: dividend yield of 1.36%; expected volatility of 24.73%; risk-free interest rate of 6.83%; and expected life of 7.36 years. The following is a summary of the activity with respect to 1st Source's stock option plans for the years ended December 31, 1995, 1996 and 1997:
Weighted- Average Number of Exercise Shares Price - ------------------------------------------------------- Options outstanding, January 1, 1995 766,785 $ 7.65 - ------------------------------------------------------- Options granted - - - ------------------------------------------------------- Options exercised (2,753) 9.95 - ------------------------------------------------------- Options outstanding, December 31, 1995 764,032 7.65 ======================================================= Options granted 161,300 15.09 - ------------------------------------------------------- Options exercised (7,955) 9.95 - ------------------------------------------------------- Options outstanding, December 31, 1996 917,377 8.94 ======================================================= Options granted 11,000 19.77 - ------------------------------------------------------- Options exercised (236,045) 5.30 - ------------------------------------------------------- Options forfeited (7,910) 10.84 - ------------------------------------------------------- Options outstanding, December 31, 1997 684,422 10.30 ======================================================= Options exercisable, December 31, 1997 579,812 $ 9.34 =======================================================
The following table summarizes information about stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING ------------------- Weighted- Average Weighted- Range of Number Remaining Average Exercise Outstanding Contractual Exercise Prices at 12/31/97 Life (Years) Price ------ ----------- ------------ ----- $ 6.00 to $ 8.99 223,839 6.00 $ 6.65 9.00 to 13.99 291,777 6.10 10.15 14.00 to 19.99 168,806 8.63 15.39 OPTIONS EXERCISABLE ------------------- Weighted- Range of Number Average Exercise Exercisable Exercise Prices at 12/31/97 Price -------- ----------- --------- $ 6.00 to $ 8.99 223,839 $ 6.65 9.00 to 13.99 291,777 10.15 14.00 to 19.99 64,196 15.09
-------- 31 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE H -- COMMON STOCK -- CONCLUDED EMPLOYEE STOCK PURCHASE PLAN 1st Source also has an employee stock purchase plan for substantially all employees with at least two years of service on the effective date of an offering under the plan. Eligible employees may elect to purchase any dollar amount of stock so long as such amount does not exceed 25% of their base rate of pay and the aggregate stock accrual rate for all offerings does not exceed $25,000 in any calendar year. Payment for the stock is made through payroll deductions over the offering period, and employees may discontinue the deductions at any time and exercise the option to take the funds out of the program. The most recent offering began June 1, 1997, and runs through May 31, 1999, with $509,667 in stock value to be purchased at $22.36 per share. The fair value of the employees' purchase rights for the 1997 offerings was estimated using the Black-Scholes model with the following assumptions: dividend yield of 1.28%; expected volatility of 17.52%; risk-free interest rate of 6.22%; and, expected life of two years. Pro forma net income and diluted net income per common share, reported as if compensation expense had been recognized under the fair value provisions of SFAS No. 123 for the stock option and employee stock purchase plans are as follows:
1997 1996 1995 ---- ---- ---- Net income (000s): As reported $26,489 $23,203 $21,042 Pro forma 26,146 23,049 20,984 Diluted net income per common share: As reported $1.49 $1.32 $1.19 Pro forma 1.49 1.31 1.19
EXECUTIVE INCENTIVE PLAN 1st Source has an Executive Incentive Plan which is administered by the Committee. Awards under the plan include "Book Value" shares of common stock. These shares are awarded annually based on weighted performance criteria and vest over a period of five years. The Plan shares may only be sold to 1st Source, and such sale is mandatory in the event of death, retirement, disability or termination of employment. Grants under the plan for 1997, 1996 and 1995 are summarized below:
1997 1996 1995 ---- ---- ---- Number of shares 35,901 43,860 47,741 Weighted-average grant-date fair value $9.98 $8.89 $7.95
SPECIAL LONG-TERM INCENTIVE AWARD During February 1996 and March 1991, 1st Source granted special long-term incentive awards, including 1st Source common stock, to participants in the Executive Incentive Plan. Shares granted under the plan vest over a period of ten years. The first 10% was vested at the time of the grants. Subsequent vesting requires (i) the participant to remain an employee of 1st Source and (ii) that 1st Source be profitable on an annual basis based on the determination of the Committee. Grants under the plan for 1996 are summarized below:
1996 ----- Number of shares 25,526 Weighted-average grant-date fair value $16.27
RESTRICTED STOCK AWARD PLAN 1st Source also has a restricted stock award plan for key employees. Awards under the plan are made to employees recommended by the Chief Executive Officer and approved by the Committee. Shares granted under the plan vest over a five to ten-year period, and vesting is based upon meeting certain criteria, including continued employment by 1st Source. Grants under the plan for 1997, 1996 and 1995 are summarized below:
1997 1996 1995 ---- ---- ---- Number of shares 1,741 2,011 2,078 Weighted-average grant-date fair value $20.91 $16.27 $11.65
- -------- 32 33 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE I -- PREFERRED STOCK AND CUMULATIVE TRUST PREFERRED SECURITIES As of December 31, 1997, 1st Source has 10 million shares of authorized but unissued preferred stock. The Board of Directors of 1st Source is authorized to determine the terms, preferences, limitations, voting rights and number of shares of each series it elects to issue. During 1997, 1st Source raised $44.75 million through the issuance of Cumulative Trust Preferred Securities. 1st Source Capital Trust I issued $27.5 million of 9.00% Cumulative Trust Preferred Securities. 1st Source Capital Trust II issued $17.25 million of floating rate Cumulative Trust Preferred Securities. 1st Source Capital Trust I and 1st Source Capital Trust II are wholly owned, consolidated subsidiaries of 1st Source. The Holders of the Fixed Rate Preferred Securities are entitled to receive preferential cumulative cash distributions from 1st Source Capital Trust I, at the annual rate of 9.00% of the liquidation amount of $25 per Preferred Security, accruing from the date of original issuance and payable quarterly in arrears on the last day of March, June, September and December of each year. Holders of the Floating Rate Preferred Securities are entitled to receive preferential cumulative cash distributions from 1st Source Capital Trust II, at the annual rate equal to the sum of the 3-Month Treasury adjusted to a constant maturity plus 2.25% applied to the liquidation amount of $25 per Floating Rate Preferred Security accruing from the date of original issuance and payable quarterly in arrears on the last day of March, June, September and December of each year. - -------------------------------------------------------------------------------- NOTE J -- EMPLOYEE BENEFIT PLANS 1st Source maintains a defined contribution money purchase pension plan covering the majority of its employees. Contributions to the plan are based on 2% of participants' eligible compensation. For the years ended December 31, 1997, 1996 and 1995, total pension expense for this plan amounted to $433,000, $422,000, and $359,000, respectively. 1st Source also maintains a defined contribution profit sharing and savings plan covering the majority of its employees. The plan allows eligible employees to make contributions by salary reduction pursuant to Section 401(k) of the Internal Revenue Code. 1st Source is required under the plan to match 100% of participant contributions up to 4% of compensation and one-half of any additional participant contributions up to 6% of compensation provided that 1st Source is profitable for the respective plan year. 1st Source may also make discretionary contributions to the plan, depending on its profitability. Contribution expense for this plan for the years ended December 31, 1997, 1996 and 1995, amounted to $1.29 million, $1.21 million, and $1.07 million, respectively. Trustcorp Mortgage Company contributes to a defined contribution plan for all of its employees who meet the general eligibility requirements of the plan. The contributions, which in part are based on amounts of compensation deferred by the participants in the plan, were $54,000 in 1997, $40,000 in 1996, and $37,000 in 1995. In addition, Trustcorp Mortgage Company made discretionary contributions of $103,000 in 1997, $100,000 in 1996, and $80,000 in 1995. In addition to the pension and profit sharing plans, 1st Source provides certain health care and life insurance benefits for substantially all of their retired employees. All of 1st Source's full-time employees become eligible for these retiree benefits upon reaching age 55 with 20 years of credited service. Generally, the medical plan pays a stated percentage of eligible medical expenses reduced for any deductibles and payments made by government programs and other group coverage. The lifetime maximum benefit payable under the medical plan is $15,000 and $3,000 for life insurance. The following table sets forth 1st Source's accumulated postretirement benefit obligation, which is unfunded, reconciled to the accrued postretirement benefit cost recognized in the consolidated statements of financial condition at December 31, 1997 and 1996:
1997 1996 - -------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ 370,000 $ 451,700 - -------------------------------------------------------------------------------- Fully eligible active plan participants 209,200 188,600 - -------------------------------------------------------------------------------- Other active participants 658,900 542,600 - -------------------------------------------------------------------------------- 1,238,100 1,182,900 - -------------------------------------------------------------------------------- Unrecognized net gain 114,300 68,400 - -------------------------------------------------------------------------------- Accrued postretirement benefit cost $1,352,400 $1,251,300 ================================================================================
-------- 33 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE J -- EMPLOYEE BENEFIT PLANS -- CONCLUDED The components of net periodic postretirement benefit cost for 1997, 1996 and 1995 were as follows:
1997 1996 1995 - ------------------------------------------------------------------------------- Service cost of benefits earned $ 35,400 $ 35,300 $ 26,700 - ------------------------------------------------------------------------------- Interest cost on accumulated post- retirement benefit obligation 84,300 81,900 86,800 - ------------------------------------------------------------------------------- Net periodic post- retirement benefit cost $119,700 $117,200 $113,500 ===============================================================================
For measuring the expected postretirement benefit obligation, a 7.8% annual rate of increase for participants under age 65 and a 7.2% annual rate of increase for participants under age 65 and a 7.2% annual rate of increase for participants over age 65 in the per capita claims cost was assumed for 1997 (8.4% and 7.4%, respectively, were assumed for 1996). This rate was assumed to decrease each year to 5.6% for both participants under age 65 and participants over age 65 in 2021 and remain at that level thereafter. The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.9% and 7.5% at December 31, 1997 and 1996, respectively. If the health care cost trend rate were increased 1.9%, the accumulated postretirement benefit obligation as of December 31, 1997, would have increased by 5.8%. The effect of this change on the aggregate of service and interest cost for 1997 would be an increase of 6.3%. - -------------------------------------------------------------------------------- NOTE K -- INCOME TAXES Income tax expense is comprised of the following:
1997 1996 1995 - ------------------------------------------------- (Dollars in thousands) Current: Federal $ 6,969 $10,036 $10,173 - ------------------------------------------------- State 2,584 3,507 3,489 - ------------------------------------------------- TOTAL CURRENT 9,553 13,543 13,662 - ------------------------------------------------- Deferred: Federal 3,824 (906) (2,105) - ------------------------------------------------- State 1,015 (241) (556) - ------------------------------------------------- TOTAL DEFERRED 4,839 (1,147) (2,661) - ------------------------------------------------- TOTAL PROVISION $14,392 $12,396 $11,001 =================================================
Deferred tax assets and liabilities as of December 31, 1997 and 1996 consisted of the following:
1997 1996 - ---------------------------------------------------- (Dollars in thousands) Deferred tax assets: Reserve for loan losses $14,991 $12,577 - ---------------------------------------------------- Accruals for employee benefits 2,392 2,273 - ---------------------------------------------------- Asset securitization 2,309 2,399 - ---------------------------------------------------- Mortgage loans - Section 475 441 86 - ---------------------------------------------------- Deferred mortgage loan fees 208 251 - ---------------------------------------------------- Excess servicing 119 105 - ---------------------------------------------------- Other 892 878 - ---------------------------------------------------- TOTAL $21,352 $18,569 ==================================================== 1997 1996 - ---------------------------------------------------------- (Dollars in thousands) Deferred tax liabilities: Differing depreciable bases in premises and leased equipment $ 5,373 $1,495 - ---------------------------------------------------------- Purchased servicing 1,728 (916) - ---------------------------------------------------------- Net unrealized appre- ciation of securities available-for-sale 1,288 311 - ---------------------------------------------------------- Differing bases in assets related to acquisitions 1,235 1,695 - ---------------------------------------------------------- Originated mortgage servicing rights 1,017 567 - ---------------------------------------------------------- Discounts accreted on investment securities 210 118 - ---------------------------------------------------------- Other 426 385 - ---------------------------------------------------------- TOTAL $11,277 $3,655 ==========================================================
- -------- 34 35 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE K -- INCOME TAXES -- CONCLUDED The reasons for the difference between income tax expense and the amount computed by applying the statutory federal income tax rate (35 percent) to income before income taxes are as follows:
Year Ended December 31 ---------------------- 1997 1996 1995 ----------------------------------------------------------------------------- Percent of Percent of Percent of Pretax Pretax Pretax Amount Income Amount Income Amount Income - ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Statutory federal income tax $14,917 35.0% $12,460 35.0% $11,215 35.0% - ---------------------------------------------------------------------------------------------------------------------- Increase (decrease) in income taxes resulting from: Tax-exempt interest income (2,968) (7.0) (2,922) (8.2) (2,790) (8.7) - ---------------------------------------------------------------------------------------------------------------------- State taxes, net of federal income tax benefit 2,339 5.5 2,123 5.9 1,906 5.9 - ---------------------------------------------------------------------------------------------------------------------- Interest expense incurred to carry tax-exempt securities 417 1.0 376 1.1 325 1.0 - ---------------------------------------------------------------------------------------------------------------------- Contribution of appreciated stock (358) (0.8) - - - - - ---------------------------------------------------------------------------------------------------------------------- Other 45 0.1 359 1.0 345 1.1 - ---------------------------------------------------------------------------------------------------------------------- TOTAL $14,392 33.8% $12,396 34.8% $11,001 34.3% ======================================================================================================================
NOTE L -- LEASES 1st Source and its subsidiaries lease certain office premises and equipment under operating leases. The headquarters building is leased for a remaining term of 14 years with options to renew for up to 15 additional years. Approximately 30% of the facility is subleased to other tenants. At December 31, 1997, future minimum rental commitments for all noncancellable operating leases, reduced by future minimum rentals from subleases of $3.24 million, aggregate $17.48 million. Annual rental commitments and sublease rentals for noncancellable operating leases for the five years succeeding December 31, 1997, are as follows:
Rental Sublease Commitments Rentals - --------------------------------------------------------- (Dollars in thousands) 1998 $ 2,041 $900 - --------------------------------------------------------- 1999 1,931 781 - --------------------------------------------------------- 2000 1,766 786 - --------------------------------------------------------- 2001 1,581 463 - --------------------------------------------------------- 2002 1,359 59 - --------------------------------------------------------- Thereafter $12,039 $253 - ---------------------------------------------------------
Rental expense of office premises and equipment and related sublease income were as follows:
Years Ended December 31 -------------------------- 1997 1996 1995 - ----------------------------------------------------------- (Dollars in thousands) Gross rental expense $ 2,190 $2,203 $ 2,314 - ----------------------------------------------------------- Sublease rental income (1,203) (677) (1,841) - ----------------------------------------------------------- NET RENTAL EXPENSE $ 987 $1,526 $ 473 ===========================================================
-------- 35 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE M -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK 1st Source and its subsidiaries are parties to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These off-balance-sheet financial instruments include commitments to originate, purchase and sell loans, standby letters of credit and interest rate swaps. The instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. 1st Source's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby letters of credit is represented by the dollar amount of those instruments. 1st Source uses the same credit policies and collateral requirements in making commitments and conditional obligations as it does for on-balance-sheet instruments. Loan commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Trustcorp Mortgage Company grants mortgage loan commitments to borrowers, subject to normal loan underwriting standards. The interest rate risk associated with these loan commitments is managed by entering into contracts for future deliveries of loans. Letters of credit are conditional commitments issued by 1st Source to guarantee the performance of a customer to a third party. The credit risk involved and collateral obtained in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers. As of December 1997 and 1996, 1st Source and its subsidiaries had commitments outstanding to originate and purchase loans aggregating $410 million and $276 million, respectively. Outstanding commitments to sell loans aggregated $120 million at December 31, 1997 and $71 million at December 31, 1996. Commercial and standby letters of credit totaled $57 million and $51 million at December 31, 1997 and 1996, respectively. 1st Source Bank participates in interest rate swap agreements as part of its program to manage the impact of fluctuating interest rates, namely with respect to floating rate loans. Interest rate swaps generally involve the exchange of fixed and floating rate interest payments without the exchange of the underlying notional amount. Notional amounts represent agreed upon amounts on which calculations of interest payments to be exchanged are based. Notional amounts do not represent direct credit exposures. The actual market or credit exposure of this type of financial instrument is significantly less than the notional amount. 1st Source's direct credit exposure is limited to the net difference between the calculated "to be paid" and "to be received" amounts on each transaction, which is generally netted and paid or received monthly, and the inability of the counterparty to meet the terms of the contract. This risk is normally a small percentage of the notional amount and fluctuates as interest rates move up and down. Market risk to 1st Source is more directly measured by the fair values of the interest rate swap agreements. At December 31, 1997, 1st Source had two outstanding amortizing interest rate swap agreements with an aggregate notional value of $51.6 million. The agreements have maturities of January 25, 2002, and March 25, 2001. The notional amounts and lives of amortizing swaps change based on certain interest rate indices. Generally, as rates fall, the notional amounts of amortizing swaps decline more rapidly and as rates increase notional amounts decline more slowly. Unrealized losses based on fair value approximated $137,000 at December 31, 1997, and $750,000 at December 31, 1996. - -------- 36 37 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE N -- CONCENTRATIONS OF CREDIT RISK Most of 1st Source's commercial, real estate and installment loan activity is with customers located in north-central Indiana and southwest lower Michigan. 1st Source's transportation and equipment loan activity is with customers located throughout the United States. Included in loans as of December 31, 1997 and 1996, are business loans to companies in the following industries:
Pecentage of Total Amount Business Loans ------ -------------- 1997 1996 1997 1996 - --------------------------------------------------------------------------------------------------- (Dollars in thousands) Truck and automobile leasing $267,596 $186,702 18.9% 16.8% - --------------------------------------------------------------------------------------------------- Air transportation and aircraft dealers 179,653 132,973 12.7 12.0 - --------------------------------------------------------------------------------------------------- Construction equipment and contractors 124,148 73,857 8.8 6.6 - --------------------------------------------------------------------------------------------------- Real estate operators, managers and developers 88,277 65,243 6.2 5.9 - --------------------------------------------------------------------------------------------------- Van conversion, manufactured housing and recreational vehicle industries 52,870 40,634 3.7 3.7 - ---------------------------------------------------------------------------------------------------
Generally, these loans are collateralized by assets of the borrower. The loans are expected to be repaid from cash flow or proceeds from the sale of selected assets of the borrower. 1st Source requires collateral on substantially all borrowings in these categories, which is typically the item being financed. - -------------------------------------------------------------------------------- NOTE O -- CAPITAL ADEQUACY 1st Source is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on 1st Source's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, 1st Source must meet specific capital guidelines that involve quantitative measures of 1st Source's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. 1st Source's capital amounts and classification are subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require 1st Source to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets. Management believes, as of December 31, 1997, that 1st Source meets all capital adequacy requirements to which it is subject. As of December 31, 1997, the most recent notification from the Federal Reserve Bank of Chicago categorized 1st Source Bank, the largest of 1st Source's subsidiaries, as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized" 1st Source must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes changed the institution's category. 1st Source and its largest subsidiary, 1st Source Bank's actual capital amounts and ratios are presented in the table below:
To Be Well Capitalized Under Minimum Capital Prompt Corrective Actual Adequacy Action Provisions ------ --------------- ----------------- $ Amount Ratio $ Amount Ratio $ Amount Ratio - --------------------------------------------------------------------------------------------------------- (Dollars in thousands) As of December 31, 1997: Total Capital (to Risk-Weighted Assets): Consolidated $261,350 13.72% $152,409 8.00% $190,511 10.00% 1st Source Bank 208,011 11.18 148,819 8.00 186,024 10.00 Tier I Capital (to Risk-Weighted Assets): Consolidated 234,521 12.31 76,205 4.00 114,307 6.00 1st Source Bank 181,736 9.77 74,410 4.00 111,614 6.00 Tier I Capital (to Average Assets): Consolidated 234,521 9.98 93,955 4.00 117,443 5.00 1st Source Bank 181,736 8.05 90,314 4.00 112,893 5.00
-------- 37 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE P -- COMMITMENTS AND CONTINGENT LIABILITIES 1st Source and its subsidiaries are defendants in various legal proceedings arising in the normal course of business. In the opinion of management, based on the advice of legal counsel, the ultimate resolution of these proceedings will not have a material effect on 1st Source's consolidated financial position or results of operations. The consolidated financial statements do not reflect various commitments and contingent liabilities, such as guarantees and liability for assets held in trust, which arise in the normal course of business. - -------------------------------------------------------------------------------- NOTE Q -- 1ST SOURCE CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION STATEMENTS OF FINANCIAL CONDITION
December 31 1997 1996 - --------------------------------------------------------------------------------------------------- (Dollars in thousands) ASSETS Cash $ 30 $ 1 - --------------------------------------------------------------------------------------------------- Short-term investments with bank subsidiary 2,244 5,837 - --------------------------------------------------------------------------------------------------- Investment securities, available-for-sale (amortized cost of $17,889 and $11,084 at December 31, 1997 and 1996, respectively) 18,873 11,491 - --------------------------------------------------------------------------------------------------- Investments in: Bank subsidiaries 182,919 160,316 - --------------------------------------------------------------------------------------------------- Non-bank subsidiaries 11,098 9,235 - --------------------------------------------------------------------------------------------------- Loan receivables: Bank subsidiary 30,000 - - --------------------------------------------------------------------------------------------------- Non-bank subsidiary 4,000 - - --------------------------------------------------------------------------------------------------- Premises and equipment, net 3,398 3,177 - --------------------------------------------------------------------------------------------------- Other assets 4,174 3,320 - --------------------------------------------------------------------------------------------------- TOTAL ASSETS $256,736 $193,377 =================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Commercial paper borrowings $4,198 $6,467 - --------------------------------------------------------------------------------------------------- Other liabilities 1,356 2,216 - --------------------------------------------------------------------------------------------------- Long-term debt 56,229 12,861 - --------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 61,783 21,544 - --------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY 194,953 171,833 - --------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $256,736 $193,377 ===================================================================================================
- -------- 38 39 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE Q -- 1ST SOURCE CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION -- CONTINUED STATEMENTS OF INCOME
Year Ended December 31 ---------------------- 1997 1996 1995 - --------------------------------------------------------------------------------------------------- (Dollars in thousands) Income: Dividends from bank subsidiaries $ 5,725 $ 5,029 $ 4,851 - --------------------------------------------------------------------------------------------------- Rental income from subsidiaries 2,273 2,071 2,199 - --------------------------------------------------------------------------------------------------- Other 3,447 679 1,497 - --------------------------------------------------------------------------------------------------- TOTAL INCOME 11,445 7,779 8,547 - --------------------------------------------------------------------------------------------------- Expenses: Interest on long-term debt 3,810 1,015 1,379 - --------------------------------------------------------------------------------------------------- Interest on commercial paper and other short-term borrowings 309 274 261 - --------------------------------------------------------------------------------------------------- Rent expense 1,076 1,074 1,076 - --------------------------------------------------------------------------------------------------- Other 2,681 1,775 2,493 - --------------------------------------------------------------------------------------------------- TOTAL EXPENSES 7,876 4,138 5,209 - --------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAX CREDITS AND EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 3,569 3,641 3,338 - --------------------------------------------------------------------------------------------------- Income tax credits 925 639 709 - --------------------------------------------------------------------------------------------------- INCOME BEFORE EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES 4,494 4,280 4,047 - --------------------------------------------------------------------------------------------------- Equity in undistributed income of subsidiaries: Bank subsidiaries 19,736 18,257 16,540 - --------------------------------------------------------------------------------------------------- Non-bank subsidiaries 2,259 666 455 - --------------------------------------------------------------------------------------------------- NET INCOME $26,489 $23,203 $21,042 ===================================================================================================
-------- 39 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued 1st Source Corporation and Subsidiaries - -------------------------------------------------------------------------------- NOTE Q -- 1ST SOURCE CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION -- CONCLUDED STATEMENTS OF CASH FLOWS
Year Ended December 31 ---------------------- 1997 1996 1995 - ----------------------------------------------------------------------------------------------------- (Dollars in thousands) OPERATING ACTIVITIES: Net income $ 26,489 $ 23,203 $ 21,042 - ----------------------------------------------------------------------------------------------------- Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed income of subsidiaries (21,995) (18,923) (16,995) - ----------------------------------------------------------------------------------------------------- Depreciation of premises and equipment 201 175 174 - ----------------------------------------------------------------------------------------------------- Realized and unrealized investment securities gains (losses) 176 (52) (418) - ----------------------------------------------------------------------------------------------------- Other 3,054 2,854 2,737 - ----------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 7,925 7,257 6,540 - ----------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Proceeds from sales and maturities of investment securities 8,759 3,804 3,601 - ----------------------------------------------------------------------------------------------------- Purchase of investment securities (15,788) (2,955) (2,930) - ----------------------------------------------------------------------------------------------------- Decrease in loan to non-bank subsidiary - 300 370 - ----------------------------------------------------------------------------------------------------- Purchase of preferred stock of non-bank subsidiary - - (2,700) - ----------------------------------------------------------------------------------------------------- Purchase of premises and equipment, net (422) (471) (49) - ----------------------------------------------------------------------------------------------------- Contributed capital for new non-bank subsidiary (1,384) - - - ----------------------------------------------------------------------------------------------------- Decrease (increase) in short-term investments with bank subsidiary 3,593 (582) (175) - ----------------------------------------------------------------------------------------------------- Loans made to subsidiaries (34,000) - - - ----------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (39,242) 96 (1,883) - ----------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Net increase (decrease) in commercial paper and other short-term borrowings (2,269) 1,616 3,581 - ----------------------------------------------------------------------------------------------------- Proceeds from issuance of cumulative trust preferred securities 44,750 - - - ----------------------------------------------------------------------------------------------------- Proceeds from issuance of long-term debt 1,452 - 10,000 - ----------------------------------------------------------------------------------------------------- Payments on long-term debt (2,834) (3,346) (11,265) - ----------------------------------------------------------------------------------------------------- Acquisition of treasury stock (5,023) (1,488) (3,363) - ----------------------------------------------------------------------------------------------------- Cash dividends (4,723) (4,123) (3,594) - ----------------------------------------------------------------------------------------------------- Other (7) (12) (18) - ----------------------------------------------------------------------------------------------------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 31,346 (7,353) (4,659) - ----------------------------------------------------------------------------------------------------- CHANGE IN CASH AND CASH EQUIVALENTS 29 - (2) - ----------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1 1 3 - ----------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 30 $ 1 $ 1 =====================================================================================================
- -------- 40 41 REPORT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- Coopers & Lybrand L.L.P. To the Shareholders and Board of Directors of 1st Source Corporation: We have audited the accompanying consolidated statements of financial condition of 1st Source Corporation and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of 1st Source Corporation and subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. South Bend, Indiana January 12, 1998, except for Note A, for which the date is January 20, 1998. -------- 41 42 [MAP OF BANKING CENTER LOCATIONS] - -------- 42 43 OFFICERS AND DIRECTORS - ------------------------------------------------------------------------------- [1ST SOURCE CORPORATION LOGO] OFFICERS Ernestine M. Raclin Chairman of the Board Christopher J. Murphy III President and Chief Executive Officer Wellington D. Jones III Executive Vice President Vincent A. Tamburo Secretary and General Counsel Larry E. Lentych Treasurer and Chief Financial Officer DIRECTORS Rev. E. William Beauchamp Executive Vice President, University of Notre Dame Paul R. Bowles Former Vice President, Corporate Development, Clark Equipment Company Philip J. Faccenda General Counsel Emeritus, University of Notre Dame Daniel B. Fitzpatrick Chairman, President and Chief Executive Officer, Quality Dining, Inc. Lawrence E. Hiler President, Hiler Industries William P. Johnson Chairman and Chief Executive Officer, Goshen Rubber Company, Inc. Leo J. McKernan Former Chairman, President and Chief Executive Officer, Clark Equipment Company Rex Martin Chairman, President and Chief Executive Officer NIBCO, INC. Dane A. Miller President and Chief Executive Officer, Biomet, Inc. Christopher J. Murphy III President and Chief Executive Officer Richard J. Pfeil Chairman and President, Koontz-Wagner Electric Co. Ernestine M. Raclin Chairman of the Board [1ST SOURCE BANK LOGO] OFFICERS Ernestine M. Raclin Chairman of the Board Christopher J. Murphy III President and Chief Executive Officer Wellington D. Jones III Executive Vice President Personal and Small Business Banking Group Richard Q. Stifel Executive Vice President, Commercial Banking Group Allen R. Qualey Executive Vice President, Transpor- tation and Equipment Financing Group James S. Jackson Senior Vice President, Funds Management Division Larry E. Lentych Senior Vice President, Treasurer and Chief Financial Officer, Accounting and Finance Division Larry A. Gardner Senior Vice President, Operations and Administrative Services Group Steven J. Wessel Vice President, Trust Operations and Investment Management Division Vincent A. Tamburo Senior Vice President and Secretary, General Counsel Maggie M. Kernan Senior Vice President, Marketing Division Dan L. Craft Senior Vice President, Human Resources Division DIRECTORS Rev. E. William Beauchamp Executive Vice President, University of Notre Dame Paul R. Bowles Former Vice President, Corporate Development, Clark Equipment Company Philip J. Faccenda General Counsel Emeritus, University of Notre Dame Daniel B. Fitzpatrick Chairman, President and Chief Executive Officer, Quality Dining, Inc. Terry L. Gerber President and Chief Executive Officer, Gerber Manufacturing Company, Inc. Lawrence E. Hiler President, Hiler Industries Anne M. Hillman Civic Leader Hollis E. Hughes, Jr. Executive Director, United Way of St. Joseph County H. Thomas Jackson Chairman, Bornemann Coated Fabrics, Bornemann Products William P. Johnson Chairman and Chief Executive Officer, Goshen Rubber Company, Inc. Craig A. Kapson President, Jordan Ford, Toyota, Volvo, Lincoln Mercury David L. Lerman President, Steel Warehouse Co., Inc. Christopher J. Murphy III President and Chief Executive Officer Richard J. Pfeil Chairman and President, Koontz-Wagner Electric Co. John T. Phair President, Holladay Partners- Midwest, Inc. Ernestine M. Raclin Chairman of the Board Mark D. Schwabero Regional President, NAFTA President, Automotive Products North America, Libby-Owens-Ford Elmer H. Tepe President, E.H. Tepe Co. -------- 43 44 SHAREHOLDERS' INFORMATION - ------------------------------------------------------------------------------- 1997 STOCK PERFORMANCE AND DIVIDENDS 1st Source Corporation common stock is traded on the Over-The-Counter market and is listed on the Nasdaq Stock Market under the symbol "SRCE." 1st Source is also listed on the National Market System tables in many daily papers under the symbol "1stSrc." High and low common stock prices, cash dividends paid for 1997 and book value were:
CASH DIVIDENDS QUARTER ENDED HIGH LOW PAID - -------------------------------------------------------------- March 31 $22 1/2 $17 1/2 $.066 - -------------------------------------------------------------- June 30 25 19 1/2 .068 - -------------------------------------------------------------- September 30 25 3/4 23 1/2 .068 - -------------------------------------------------------------- December 31 30 1/4 24 1/2 .073 ============================================================== Book value per common share at December 31, 1997: $11.26. Adjusted for a 10% stock dividend declared January 20, 1998.
- ------------------------------------------------------------------------------- ANNUAL MEETING OF SHAREHOLDERS The Annual Meeting of Shareholders has been called for 10:00 am, EST, Thursday, April 16, 1998, at 1st Source Center, 100 N. Michigan Street, South Bend, Indiana. All shareholders are invited to attend the meeting. - ------------------------------------------------------------------------------- COMMON STOCK LISTING The Nasdaq Stock Market National Market Symbol: "SRCE" CUSIP #336901 10 3 - ------------------------------------------------------------------------------- TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT 1st Source Bank Post Office Box 1602 South Bend, IN 46634 - ------------------------------------------------------------------------------- INDEPENDENT AUDITORS Coopers & Lybrand L.L.P. 4101 Edison Lakes Parkway-Suite 200 Mishawaka, IN 46545-3441 - ------------------------------------------------------------------------------- SHAREHOLDER INQUIRIES 1st Source Corporation Larry E. Lentych Chief Financial Officer Post OfFIce Box 1602 South Bend, IN 46634 (219) 235-2702 - ------------------------------------------------------------------------------- FORM 10-K INQUIRIES A copy of 1st Source Corporation's Annual Report on Form 10-K for the year ended December 31, 1997, as required to be filed with the Securities and Exchange Commission, is available upon request. - ------------------------------------------------------------------------------- MARKET MAKERS (as of January 20, 1998) The following firms make a market in the common shares of 1st Source Corporation: ABN-AMRO Chicago Corporation Chicago Capital, Inc. City Securities Corporation Herzog, Heine, Geduld, Inc. Howe, Barnes Investments, Inc. Keefe, Bruyette & Woods, Inc. NatCity Investments Roney and Co. Stifel, Nicolaus & Company, Incorporated - -------- 44 EX-21 14 SUBSIDIARIES OF REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT The following is a listing of all subsidiaries of 1st Source Corporation. Unless otherwise indicated, each subsidiary does business under its own name. The activities of each is described in Part I, Item I, of Form 10-K.
NAME DATE OF INCORPORATION JURISDICTION - ---------------------------------- --------------------- ------------ 1st Source Bank April 19, 1922 Indiana 1st Source Auto Leasing, Inc. October 29, 1973 Indiana (Inactive) 1st Source Insurance, Inc. July 12, 1978 Indiana 1st Source Travel, Inc. March 4, 1982 Indiana (Inactive) FBT Capital Corporation February 6, 1970 Indiana (Inactive) 1st Source Leasing, Inc. November 29, 1979 Indiana 1st Source Capital Corporation November 16, 1983 Indiana Trustcorp Mortgage Company December 5, 1973 Indiana 1st Source Capital Trust I February 20, 1997 Delaware 1st Source Capital Trust II February 27, 1997 Delaware Michigan Transportation Finance Corporation August 1, 1997 Michigan Wholly-owned subsidiaries of 1st Source Bank
E-4 EX-23 15 CONSENT OF EXPERT 1 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of 1st Source Corporation on Forms S-8 of our report dated January 12, 1998 (except for Note A, for which the date is January 20, 1998), on our audits of the consolidated financial statements of 1st Source Corporation and subsidiaries as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, which report is incorporated by reference in this Annual Report on Form 10-K of 1st Source Corporation for the year ended December 31, 1997. COOPERS & LYBRAND L.L.P. South Bend, Indiana March 4, 1998 E-5 EX-27 16
9 1,000 12-MOS DEC-31-1996 DEC-31-1997 90,864 1,677 10,000 0 299,933 114,975 119,369 1,796,781 35,424 2,418,154 1,891,791 235,006 34,998 61,406 0 0 5,700 189,253 2,418,154 147,899 24,825 592 173,316 73,150 87,324 85,992 6,052 (462) 72,977 42,619 26,489 0 0 26,489 1.54 1.49 4.38 10,030 730 0 0 29,516 1,410 (1,266) 35,424 12,142 0 23,282
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