-----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, RVHbSUP7PpMjs/sDO+UgU6/64R665dG5VJFyjfOu4XBLGbuNcG9tjxMhr3lD6YMs NUmB73c5Z0brWLNyZU501Q== 0000950124-96-005346.txt : 19961209 0000950124-96-005346.hdr.sgml : 19961209 ACCESSION NUMBER: 0000950124-96-005346 CONFORMED SUBMISSION TYPE: S-2/A PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19961206 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INDEPENDENT BANK CORP /MI/ CENTRAL INDEX KEY: 0000039311 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 382032782 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-14507 FILM NUMBER: 96677101 BUSINESS ADDRESS: STREET 1: 230 W MAIN ST STREET 2: PO BOX 491 CITY: IONIA STATE: MI ZIP: 48846 BUSINESS PHONE: 6165279450 MAIL ADDRESS: STREET 1: 230 W MAIN ST CITY: IONIA STATE: MI ZIP: 48846 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IBC CAPITAL FINANCE CENTRAL INDEX KEY: 0001026460 STANDARD INDUSTRIAL CLASSIFICATION: [] STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-14507-01 FILM NUMBER: 96677102 BUSINESS ADDRESS: STREET 1: 230 WEST MAIN STREET CITY: IONIA STATE: MI ZIP: 48846 BUSINESS PHONE: 6165279450 FORMER COMPANY: FORMER CONFORMED NAME: IBC CAPITAL DATE OF NAME CHANGE: 19961105 S-2/A 1 FORM S-2/A 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 6, 1996 REGISTRATION NO. 333-14507, 333-14507-01 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------ AMENDMENT NO. 2 TO FORM S-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------ INDEPENDENT BANK CORPORATION IBC CAPITAL FINANCE (EXACT NAME OF REGISTRANT AS SPECIFIED IN (EXACT NAME OF CO-REGISTRANT AS SPECIFIED ITS CHARTER) IN ITS CHARTER) MICHIGAN DELAWARE (STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION) 38-2032782 38-6681043 (I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
230 WEST MAIN STREET IONIA, MICHIGAN 48846 (616) 527-9450 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S AND CO-REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------------ WILLIAM R. KOHLS 230 WEST MAIN STREET IONIA, MICHIGAN 48846 (616) 527-9450 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------------ COPIES TO: MICHAEL G. WOOLDRIDGE JAMES L. NOUSS, JR. VARNUM, RIDDERING, SCHMIDT & HOWLETT LLP BRYAN CAVE LLP 333 BRIDGE STREET, N.W. 211 N. BROADWAY, SUITE 3600 GRAND RAPIDS, MICHIGAN 49504 ST. LOUIS, MISSOURI 63102-2750 (616) 336-6000 (314) 259-2000
------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [ ] If the Registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1) of this Form, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] CALCULATION OF REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF SECURITIES BEING REGISTERED REGISTERED(1) PER UNIT PRICE REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------------------- Preferred Securities of IBC Capital Finance(1).............................. 690,000 $25.00 $17,250,000 $5,227.27(2) Subordinated Debentures of Independent Bank Corporation(3)..................... (3) -- -- -- Guarantee of Independent Bank Corporation with respect to Preferred Securities(4)........................... (4) -- -- -- - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
(1) Includes 90,000 Preferred Securities which may be sold by IBC Capital Finance to cover over-allotments. (2) Registration fee was previously paid. (3) The Subordinated Debentures will be purchased by IBC Capital Finance with the proceeds of the sale of the Preferred Securities. Such securities may later be distributed for no additional consideration to the holders of the Preferred Securities of IBC Capital Finance upon its dissolution and the distribution of its assets. (4) This Registration Statement is deemed to cover the Subordinated Debentures of Independent Bank Corporation, the rights of holders of Subordinated Debentures of Independent Bank Corporation under the Indenture, and the rights of holders of the Preferred Securities under the Trust Agreement, the Guarantee and the Expense Agreement entered into by Independent Bank Corporation. No separate consideration will be received for the Guarantee. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INDEPENDENT BANK CORPORATION CROSS REFERENCE SHEET
FORM S-2 NUMBER AND CAPTION LOCATION IN PROSPECTUS ------------------------------------------- ------------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of the Prospectus................................. Outside Front Cover 2. Inside Front and Outside Back Cover Pages of Prospectus.............................. Inside Front Cover; Available Information; Outside Back Cover 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges............... Prospectus Summary; Consolidated Financial Data; Risk Factors 4. Use of Proceeds............................ Prospectus Summary; Use of Proceeds 5. Determination of Offering Price............ Not Applicable 6. Dilution................................... Not Applicable 7. Selling Security Holders................... Not Applicable 8. Plan of Distribution....................... Underwriting 9. Description of Securities to be Registered................................. Prospectus Summary; Description of Preferred Securities; Description of Subordinated Debentures; Description of Guarantee; Description of Capital Stock; Book-Entry Issuance 10. Interests of Named Experts and Counsel..... Validity of Securities; Experts 11. Information with Respect to the Company.... Prospectus Summary; Recent Developments; Capitalization; Selected Consolidated Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Incorporation of Certain Documents by Reference; Description of Preferred Securities; Description of Subordinated Debentures; Description of Guarantee; Relationship Among the Preferred Securities, the Subordinated Debentures and the Guarantee; Description of Capital Stock; Consolidated Financial Statements 12. Incorporation of Certain Information by Reference.................................. Incorporation of Certain Documents by Reference 13. Disclosure of Commission Position on Indemnification for Securities Act Liabilities................................ Not Applicable
3 SUBJECT TO COMPLETION, DATED DECEMBER 6, 1996 PROSPECTUS 600,000 PREFERRED SECURITIES IBC CAPITAL FINANCE % CUMULATIVE TRUST PREFERRED SECURITIES (LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY) FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY INDEPENDENT BANK LOGO ------------------------ $15,000,000 % SUBORDINATED DEBENTURES OF INDEPENDENT BANK CORPORATION ------------------------ The % Cumulative Trust Preferred Securities ("Preferred Securities") offered hereby represent beneficial interests in IBC Capital Finance, a trust created under the laws of the State of Delaware ("IBC Capital"). Independent Bank Corporation, a Michigan corporation ("Company") will be the owner of all the beneficial interests represented by common securities of IBC Capital ("Common Securities"). State Street Bank and Trust Company is the Property Trustee of IBC Capital. IBC Capital exists for the purpose of issuing the Preferred Securities and investing the proceeds thereof in an equivalent amount of % Subordinated Debentures ("Subordinated Debentures"), to be issued by the Company. The Subordinated Debentures will mature on , 2026, which date may be (1) shortened to a date not earlier than , 2001, or (2) extended to a date not later than , 2045, in each case if certain conditions are met (including, in the case of shortening the Stated Maturity (as defined herein), the Company having received prior approval of the Board of (continued on next page) ------------------------ SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ------------------------ THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER GOVERNMENTAL AGENCY AND INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ PRICE TO UNDERWRITING PROCEEDS TO PUBLIC COMMISSION(1) IBC CAPITAL(2)(3) - ------------------------------------------------------------------------------------------------------ Per Preferred Security................. $25.00 (2) $ - ------------------------------------------------------------------------------------------------------ Total(4)............................... $15,000,000 (2) $ - ------------------------------------------------------------------------------------------------------
(1) IBC Capital and the Company have each agreed to indemnify the Underwriter against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) In view of the fact that the proceeds of the sale of the Preferred Securities will be invested in the Subordinated Debentures, the Company has agreed to pay the Underwriter as compensation ("Underwriter's Compensation") for its arranging the investment therein of such proceeds, $ per Preferred Security, or $ in the aggregate, ($ if the over-allotment option is exercised in full). See "Underwriting." (3) Expenses of the offering are payable by the Company and are estimated to be $340,000. (4) IBC Capital has granted the Underwriter an option exercisable within thirty (30) days from the date of this Prospectus to purchase up to 90,000 additional Preferred Securities on the same terms and conditions set forth above to cover over-allotments, if any. If all such additional Preferred Securities are purchased, the total Price to Public and Proceeds to IBC Capital will be $17,250,000 and $ respectively. See "Underwriting." ------------------------ The Preferred Securities are offered by the Underwriter subject to receipt and acceptance by it, prior sale and the Underwriter's right to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. It is expected that delivery of the Preferred Securities will be made in St. Louis, Missouri on or about , 1996. STIFEL, NICOLAUS & COMPANY INCORPORATED December , 1996 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. 4 (continued from previous page) Governors of the Federal Reserve System ("Federal Reserve") to do so if then required under applicable capital guidelines or policies of the Federal Reserve). The Preferred Securities will have a preference under certain circumstances with respect to cash distributions and amounts payable on liquidation, redemption or otherwise over the Common Securities. See "Description of Preferred Securities -- Subordination of Common Securities." Holders of Preferred Securities will be entitled to receive preferential cumulative cash distributions 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, commencing March 31, 1997, at the annual rate of % of the Liquidation Amount of $25 per Preferred Securities ("Distributions"). The Company has the right to defer payment of interest on the Subordinated Debentures at any time or from time to time for a period not to exceed 20 consecutive quarters with respect to each deferral period (each, an "Extension Period"), provided that no Extension Period may extend beyond the Stated Maturity of the Subordinated Debentures. Upon the termination of any such Extension Period and the payment of all amounts then due, the Company may elect to begin a new Extension Period subject to the requirements set forth herein. If interest payments on the Subordinated Debentures are so deferred, Distributions on the Preferred Securities will also be deferred, and the Company will not be permitted, subject to certain exceptions described herein, to declare or pay any cash distributions with respect to its capital stock or debt securities that rank pari passu with or junior to the Subordinated Debentures. During an Extension Period, interest on the Subordinated Debentures will continue to accrue (and the amount of Distributions to which holders of the Preferred Securities are entitled will accumulate) at the rate of % per annum, compounded quarterly, and holders of the Preferred Securities will be required to accrue interest income for United States federal income tax purposes. See "Description of Subordinated Debentures -- Option to Extend Interest Payment Period," and "Certain Federal Income Tax Consequences -- Potential Extension of Interest Payment Period and Original Issue Discount." The Company has, through the Guarantee, Trust Agreement, Subordinated Debentures, Indenture and the Expense Agreement (each as defined herein), taken together, fully, irrevocably and unconditionally guaranteed all of IBC Capital's obligations under the Preferred Securities. See "Relationship Among the Preferred Securities, the Subordinated Debentures and the Guarantee -- Full and Unconditional Guarantee." The Guarantee of the Company guarantees the payment of Distributions and payments on liquidation or redemption of the Preferred Securities, but only in each case to the extent of funds held by IBC Capital, as described herein. See "Description of Guarantee." If the Company does not make interest payments on the Subordinated Debentures held by IBC Capital, IBC Capital will have insufficient funds to pay Distributions on the Preferred Securities. The Guarantee does not cover payments of Distributions when IBC Capital does not have sufficient funds to pay such Distributions. The obligations of the Company under the Guarantee and the Preferred Securities are subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and, under certain circumstances, Additional Senior Obligations (each as defined in "Description of Subordinated Debentures -- Subordination") of the Company. The Preferred Securities are subject to mandatory redemption, in whole or in part, upon repayment of the Subordinated Debentures at maturity or their earlier redemption. Subject to Federal Reserve approval, if then required, the Subordinated Debentures are redeemable prior to maturity at the option of the Company (1) on or after , 2001, in whole at any time or in part from time to time, or (2) at any time, in whole (but not in part), upon the occurrence and during the continuance of a Tax Event or an Investment Company Event (as defined herein), in each case at a redemption price equal to the accrued and unpaid interest on the Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof. See "Description of Preferred Securities -- Redemption or Exchange." The Company will have the right at any time to terminate the Preferred Securities and cause the Subordinated Debentures to be distributed to holders of Preferred Securities in liquidation of IBC Capital, subject to the Company having received prior approval of the Federal Reserve to do so if then required under applicable capital guidelines or policies of the Federal Reserve. See "Description of Preferred Securities -- Redemption or Exchange." The Subordinated Debentures are unsecured and subordinated to all Senior Debt, Subordinated Debt and, under certain circumstances, Additional Senior Obligations. In the event of the termination of IBC Capital, after satisfaction of liabilities to creditors of IBC Capital as required by applicable law, the holders of Preferred Securities will be entitled to receive a Liquidation Amount of $25 per Preferred Security, plus accumulated and unpaid Distributions thereon to the date of payment, which may be in the form of a distribution of such amount of a Subordinated Debenture, subject to certain exceptions. See "Description of Preferred Securities -- Liquidation Distribution Upon Termination." The Preferred Securities have been approved for quotation on the Nasdaq National Market under the symbol "IBCPP." 5 [INDEPENDENT BANK LOGO] [map] IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED SECURITIES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 3 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and consolidated financial statements and notes thereto appearing elsewhere in this Prospectus or incorporated by reference herein. Unless otherwise indicated, all information in this Prospectus is based on the assumption that the Underwriter will not exercise its over-allotment option. THE COMPANY The Company is a bank holding company with four wholly owned subsidiary banks (the "Banks") engaged in the business of retail and commercial banking in portions of Michigan's lower peninsula. Collectively, the Banks serve over 45 communities, which are principally rural and suburban in nature, through their four main offices and a total of 45 branches and five loan production offices. Over the past five years, the Company has experienced significant growth in its assets while at the same time retaining a net interest margin that has exceeded 5% of average earning assets. During this time period, the Company's average annual return on equity exceeded 15%. Since December 31, 1990, total assets have increased by 119% to $793.2 million at September 30, 1996. Earnings per share have grown by a compound annual rate of 14.6% to $2.38 for the year ended December 31, 1995, from $1.38 in 1991.
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, -------------------- -------------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Assets....................... $793,152 $574,988 $590,147 $516,211 $482,027 $403,125 $406,469 Net income................... 5,819 4,987 6,810 6,031 5,606 5,109 4,018 Net income per share......... 2.02 1.74 2.38 2.09 1.95 1.78 1.38 Return on equity............. 15.78% 15.60% 15.59% 15.22% 15.21% 15.88% 13.56% Net interest margin.......... 5.45 5.69 5.65 5.88 5.85 5.88 5.20
THE COMPANY'S APPROACH TO COMMUNITY BANKING The Company attributes its past success to the consistent application of community banking practices in predominantly rural and suburban markets. The Company's operating philosophy seeks to preserve those elements of traditional community banking which management believes create a competitive advantage in the markets in which it operates. Accordingly, the Banks emphasize personal service and customer recognition, prompt response to customer needs, convenience, continuity of personnel and management, and commitment to and participation in the community. DECENTRALIZED MANAGEMENT. The Company vests management of the Banks with the authority to make local pricing and credit decisions to better anticipate customer needs, respond to customer demands, and identify profitable opportunities within their respective markets. While management of each of the Banks is granted the authority to make decisions for its local operations, it is also held accountable for its performance. CORPORATE ADMINISTRATIVE AND SUPPORT SERVICES. To complement the Company's decentralized management structure and preserve its community banking practices within an expanding franchise, the Company's corporate service departments provide a variety of services to each of the Banks. The Company believes that this partnership between the Banks' management and Company personnel allows the management of each of the Banks to focus on sales and customer service while providing the Company with internal controls, and the ability to provide consistent service quality and attain operating efficiencies. 4 7 BUSINESS STRATEGY The ability to profitably deploy the capital generated by the Company's results of operations or otherwise maintain financial leverage is critical to the Company's mission to create value for its shareholders. Much of the Company's recent growth has resulted from acquisitions. The Company will continue to consider opportunities for expansion through selective acquisitions in markets where management believes its community banking approach creates a competitive advantage. As part of this strategy, the Company has agreed to acquire eight branch facilities from First of America Bank -- Michigan, National Association, which had approximately $121.5 million in deposits and $21.5 million in loans, as of September 30, 1996. See "Recent Developments." In the absence of suitable acquisition candidates, the Company will continue to rely upon the Banks' ability to profitably fund loan growth with nondeposit funding sources, including advances from the Federal Home Loan Bank, as well as traditional deposit based funding sources. The cost of such nondeposit funds is a principal consideration in the Banks' loan and deposit pricing strategies. The Company intends to continue to focus on the management of its capital resources. The Company's dividend policies and share repurchase plan have been integral components of management's efforts to maintain profitable financial leverage. IBC CAPITAL FINANCE IBC Capital Finance ("IBC Capital") is a statutory business trust formed under Delaware law pursuant to (i) the Trust Agreement executed by the Company, as Depositor, State Street Bank and Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware Trustee, and the Administrative Trustees named therein ("Trust Agreement"), and (ii) the filing of a certificate of trust with the Delaware Secretary of State on November 7, 1996. IBC Capital's business and affairs are conducted by its Property Trustee, Delaware Trustee, and three individual Administrative Trustees who are employees or officers of or affiliated with the Company. IBC Capital exists for the exclusive purposes of (i) issuing and selling the Preferred Securities and Common Securities, (ii) using the proceeds from the sale of Preferred Securities and Common Securities to acquire Subordinated Debentures issued by the Company and (iii) engaging in only those other activities necessary, advisable or incidental thereto (such as registering the transfer of the Preferred Securities). Accordingly, the Subordinated Debentures will be the sole assets of IBC Capital, and payments under the Subordinated Debentures will be the sole revenue of IBC Capital. All of the Common Securities will be owned by the Company. The Common Securities will rank pari passu, and payments will be made thereon pro rata, with the Preferred Securities, except that upon the occurrence and during the continuance of an Event of Default under the Trust Agreement resulting from an Event of Default under the Indenture, the rights of the Company as holder of the Common Securities to payment in respect of Distributions and payments upon liquidation, redemption or otherwise will be subordinated to the rights of the holders of the Preferred Securities. See "Description of Preferred Securities -- Subordination of Common Securities." The Company will acquire Common Securities in an aggregate liquidation amount equal to 3% of the total capital of IBC Capital. IBC Capital has a term of 55 years, but may terminate earlier as provided in the Trust Agreement. The principal executive office of IBC Capital is 230 West Main Street, Ionia, Michigan 48846, Attention: Secretary, and its telephone number is (616) 527-9450. 5 8 PREFERRED SECURITIES OFFERING Securities Offered............ 600,000 Preferred Securities. The Preferred Securities represent undivided beneficial interests in IBC Capital's assets, which will consist solely of the Subordinated Debentures and payments thereunder. IBC Capital has granted the Underwriter an option, exercisable within 30 days after the date of this Prospectus, to purchase up to an additional 90,000 Preferred Securities at the initial offering price, solely to cover over-allotments, if any. Distributions................. The distributions payable on each Preferred Security will be fixed at a rate per annum of % of the Liquidation Amount of $25 per Preferred Security, will be cumulative, will accrue from , 1996, the date of issuance of the Preferred Securities, and will be payable quarterly in arrears, on March 31, June 30, September 30, and December 31 of each year, commencing March 31, 1997. See "Description of Preferred Securities -- Distributions." Option to Extend Interest Payment Period................ The Company has the right, at any time, to defer payments of interest on the Subordinated Debentures for a period not exceeding 20 consecutive quarters; provided, that no Extension Period may extend beyond the Stated Maturity of the Subordinated Debentures. As a consequence of the Company's extension of the interest payment period, quarterly Distributions on the Preferred Securities would be deferred (though such Distributions would continue to accrue with interest thereon compounded quarterly, since interest would continue to accrue and compound on the Subordinated Debentures) during any such Extension Period. During an Extension Period, the Company will be prohibited, subject to certain exceptions described herein, from declaring or paying any cash distributions with respect to its capital stock or debt securities that rank pari passu with or junior to the Subordinated Debentures. Upon the termination of any Extension Period and the payment of all amounts then due, the Company may commence a new Extension Period, subject to the foregoing requirements. See "Description of Subordinated Debentures -- Option to Extend Interest Payment Period." Should an Extension Period occur, Preferred Security holders will continue to recognize interest income for United States federal income tax purposes. See "Certain Federal Income Tax Consequences -- Potential Extension of Interest Payment Period and Original Issue Discount." Redemption.................... The Preferred Securities may be redeemed, in whole or in part, upon repayment of the Subordinated Debentures at maturity or their earlier redemption. Subject to Federal Reserve approval, if then required under applicable capital guidelines or policies of the Federal Reserve, the Subordinated Debentures are redeemable prior to maturity at the option of the Company (1) on or after , 2001, in whole at any time or in part from time to time, or (2) at any time, in whole (but not in part), upon the occurrence and during the continuance of a Tax Event or an Investment Company Event, in each case at the redemption price equal to 6 9 100% of the principal amount of the Subordinated Debenture, together with any accrued but unpaid interest to the date fixed for redemption. See "Description of Subordinated Debentures -- Redemption or Exchange." Distribution of Subordinated Debentures.................. The Company has the right at any time to terminate the Preferred Securities and cause the Subordinated Debentures to be distributed to holders of Preferred Securities in liquidation of IBC Capital, subject to the Company having received prior approval of the Federal Reserve to do so if then required under applicable capital guidelines or policies of the Federal Reserve. See "Description of Preferred Securities -- Redemption or Exchange." Guarantee..................... Under the terms of its Guarantee, the Company has guaranteed the payment of Distributions and payments on liquidation or redemption of the Preferred Securities, but only in each case to the extent of funds held by IBC Capital, as described herein. The Company has, through the Guarantee, Trust Agreement, Subordinated Debentures, Indenture and Expense Agreement, taken together, fully, irrevocably and unconditionally guaranteed all of IBC Capital's obligations under the Preferred Securities. The obligations of the Company under the Guarantee and the Preferred Securities are subordinate and junior in right of payment to all Senior Debt and Subordinated Debt and, under certain circumstances, Additional Senior Obligations. See "Description of Guarantee." Voting Rights................. Generally, the holders of the Preferred Securities will not have any voting rights. See "Description of Preferred Securities -- Voting Rights; Amendment of Trust Agreement." Use of Proceeds............... The proceeds from the sale of the Preferred Securities offered hereby will be used by IBC Capital to purchase the Subordinated Debentures issued by the Company. The net proceeds to the Company from the sale of the Subordinated Debentures will be used to increase its capital to support recent and pending acquisitions and for other general corporate purposes. See "Recent Developments" and "Use of Proceeds." Nasdaq National Market Symbol........................ IBCPP 7 10 SUMMARY CONSOLIDATED FINANCIAL DATA
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ---------------------- ------------------------------------------------------------- 1996 1995 1995 1994 1993(1) 1992(1) 1991(1) --------- --------- --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SUMMARY RESULTS OF OPERATIONS Interest income......................... $ 42,598 $ 33,534 $ 45,982 $ 37,820 $ 34,370 $ 36,465 $ 39,175 Interest expense........................ 17,548 12,881 17,900 12,585 12,305 15,150 20,538 ------- ------- ------- ------- ------- ------- ------- Net interest income................... 25,050 20,653 28,082 25,235 22,065 21,315 18,637 Provision for loan losses............... 942 477 636 473 657 1,225 1,013 ------- ------- ------- ------- ------- ------- ------- Net interest income after provision for loan losses........................... 24,108 20,176 27,446 24,762 21,408 20,090 17,624 Net gains on sale of securities and real estate mortgage loans................. 1,121 295 608 75 1,358 324 48 Other noninterest income................ 2,860 2,361 3,158 3,026 2,540 2,418 2,373 Noninterest expense..................... 19,804 15,897 21,702 19,503 17,535 15,703 14,323 ------- ------- ------- ------- ------- ------- ------- Income before federal income tax expense and extraordinary item...... 8,285 6,935 9,510 8,360 7,771 7,129 5,722 Federal income tax expense.............. 2,466 1,948 2,700 2,329 2,165 2,020 1,619 ------- ------- ------- ------- ------- ------- ------- Income before extraordinary item...... 5,819 4,987 6,810 6,031 5,606 5,109 4,103 Extraordinary item(2)................... 0 0 0 0 0 0 85 ------- ------- ------- ------- ------- ------- ------- Net income........................ $ 5,819 $ 4,987 $ 6,810 $ 6,031 $ 5,606 $ 5,109 $ 4,018 ======= ======= ======= ======= ======= ======= ======= PER SHARE DATA(3) Net income Primary............................... $ 2.02 $ 1.74 $ 2.38 $ 2.09 $ 1.95 $ 1.78 $ 1.52 Fully diluted......................... 2.02 1.74 2.38 2.09 1.95 1.78 1.38 Cash dividends declared................. 0.74 0.66 0.89 0.72 0.50 0.44 0.39 Book value(4)........................... 17.73 15.81 16.56 14.12 13.57 12.08 10.72 Dividend payment ratio(5)............... 36.52% 37.32% 36.80% 34.62% 25.54% 24.13% 26.53% Weighted average shares outstanding..... 2,878,174 2,859,794 2,861,898 2,890,368 2,878,386 2,865,902 2,980,657 SELECTED BALANCES(4) Assets.................................. $793,152 $574,988 $590,147 $516,211 $482,027 $403,125 $406,469 Securities(6)........................... 149,361 116,307 115,459 130,477 136,147 99,798 93,008 Loans and loans held for sale........... 575,807 417,059 434,091 342,658 288,643 261,634 275,144 Allowance for loan losses............... 6,720 5,249 5,243 5,054 5,053 4,023 3,784 Deposits................................ 541,781 408,526 411,624 409,471 423,620 358,874 364,431 Shareholders' equity.................... 50,733 44,906 47,025 40,311 39,049 34,467 30,327 Long-term debt.......................... 7,500 0 0 0 2,750 0 1,287 PERFORMANCE RATIOS(7) Net interest margin..................... 5.45% 5.69% 5.65% 5.88% 5.85% 5.88% 5.20% Net income to Average common equity(8).............. 15.78 15.60 15.59 15.22 15.21 15.88 13.56 Average assets........................ 1.16 1.26 1.25 1.25 1.33 1.26 1.00 Efficiency ratio(9)..................... 66.39 66.24 66.22 66.55 65.27 63.06 65.80 ASSET QUALITY RATIOS(10) Allowance for loan losses to loans(4)... 1.19% 1.27% 1.25% 1.50% 1.79% 1.58% 1.38% Nonperforming loans to loans(4)......... 0.61 0.78 0.61 0.84 1.14 1.24 1.74 Allowance for loan losses to nonperforming loans(4)................ 194.73 164.08 204.80 178.33 157.27 126.75 78.90 Nonperforming assets to total loans(4).............................. 0.78 0.99 0.79 1.25 2.08 1.99 2.17 Net loan losses to average loans(7)..... 0.11 0.10 0.12 0.16 0.15 0.37 0.30 CAPITAL RATIOS Average shareholders' equity to average assets................................ 7.32% 8.04% 8.04% 8.22% 8.72% 7.94% 6.82% Tier 1 risk-based capital ratio(4)...... 8.18 11.22 11.49 11.90 13.86 14.03 11.90 Total risk-based capital ratio(4)....... 9.44 12.48 12.75 13.03 15.13 15.29 12.56 Leverage ratio(4)....................... 5.23 7.42 7.58 7.40 7.61 8.05 6.88 RATIO OF EARNINGS TO FIXED CHARGES(11) Including interest on deposits.......... 1.47x 1.54x 1.53x 1.66x 1.63x 1.47x 1.28x Excluding interest on deposits.......... 2.39 2.88 2.75 6.60 28.95 25.25 10.23
- ------------------------- (1) Restated to reflect an acquisition accounted for as a pooling of interests. See Note 2 to the Company's Consolidated Financial Statements. (2) The cost, net of related taxes, associated with the early retirement of debt in 1991 is reported as an extraordinary item. (3) Per share data has been adjusted to give retroactive effect to 5% stock dividends in 1996 and 1995. (4) At period end. (5) For 1991, Common Stock cash dividends as a percentage of net income adjusted for preferred stock dividends. (6) Includes securities available for sale. (7) Ratios for the nine-month periods are annualized. (8) For 1991, net income to average common equity has been computed by dividing net income, after deducting dividends on preferred stock then outstanding, by average common equity. (9) Efficiency ratio equals noninterest expense divided by the sum of tax equivalent net interest income, net gains on the sale of securities and loans and other noninterest income. (10) Loans exclude loans held for sale. (11) Earnings consist of income before federal income tax plus interest expense. Fixed charges consist of interest expense. The Company does not currently have any preferred stock outstanding. 8 11 RISK FACTORS Prospective investors should carefully consider, together with the other information contained and incorporated by reference in this Prospectus, the following risk factors in evaluating the Company and its business and IBC Capital before purchasing the Preferred Securities offered hereby. In particular, prospective investors should note that this Prospectus contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and that actual results could differ materially from those contemplated by such statements. The considerations listed below represent certain important factors the Company believes could cause such results to differ. These considerations are not intended to represent a complete list of the general or specific risks that may affect the Company and IBC Capital. It should be recognized that other risks may be significant, presently or in the future, and the risks set forth below may affect the Company and IBC Capital to a greater extent than indicated. RISK FACTORS RELATING TO THE PREFERRED SECURITIES RANKING OF SUBORDINATED OBLIGATIONS UNDER THE GUARANTEE AND THE SUBORDINATED DEBENTURES The obligations of the Company under the Guarantee issued by the Company for the benefit of the holders of Preferred Securities and under the Subordinated Debentures are unsecured and rank subordinate and junior in right of payment to all Senior Debt and Subordinated Debt of the Company and, in certain circumstances relating to the dissolution, winding-up, liquidation or reorganization of the Company, to all Additional Senior Obligations of the Company. At September 30, 1996, the aggregate outstanding Senior Debt, Subordinated Debt and Additional Senior Obligations of the Company was approximately $750 million. Because the Company is a holding company, the right of the Company to participate in any distribution of assets of any of the Banks upon such Bank's liquidation or reorganization or otherwise (and thus the ability of holders of the Preferred Securities to benefit indirectly from such distribution) is subject to the prior claims of creditors of that Bank, except to the extent that the Company may itself be recognized as a creditor of that Bank. Accordingly, the Subordinated Debentures will be effectively subordinated to all existing and future liabilities of the Banks, and holders of Subordinated Debentures and Preferred Securities should look only to the assets of the Company for payments on the Subordinated Debentures. Neither the Indenture, the Guarantee nor the Trust Agreement places any limitation on the amount of secured or unsecured debt, including Senior Debt, Subordinated Debt and Additional Senior Obligations, that may be incurred by the Company. See "Description of Guarantee -- Status of the Guarantee" and "Description of Subordinated Debentures -- Subordination." The ability of IBC Capital to pay amounts due on the Preferred Securities is solely dependent upon the Company making payments on the Subordinated Debentures as and when required. OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES So long as no Event of Default under the Indenture has occurred and is continuing, the Company has the right under the Indenture to defer the payment of interest on the Subordinated Debentures at any time or from time to time for a period not exceeding 20 consecutive quarters with respect to each Extension Period, provided that no Extension Period may extend beyond the Stated Maturity of the Subordinated Debentures. As a consequence of any such deferral, quarterly Distributions on the Preferred Securities by IBC Capital will be deferred (and the amount of Distributions to which holders of the Preferred Securities are entitled will accumulate additional Distributions thereon at the rate of % per annum, compounded quarterly from the relevant payment date for such Distributions) during any such Extension Period. During any such Extension Period, the Company may not, and may not permit any subsidiary of the Company to (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company's capital stock, or (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu with or junior in interest to the Subordinated Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Subordinated Debentures (other than (a) dividends or distributions in Common 9 12 Stock, (b) any declaration of a 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, (c) payments under the Guarantee and (d) purchases of Common Stock related to the rights under any of the Company's benefit plans for its directors, officers or employees). Prior to the termination of any such Extension Period, the Company may further defer the payment of interest, provided that no Extension Period may exceed 20 consecutive quarters or extend beyond the Stated Maturity of the Subordinated Debentures. Upon the termination of any Extension Period and the payment of all interest then accrued and unpaid (together with interest thereon at the annual rate of % compounded quarterly, to the extent permitted by applicable law), the Company may elect to begin a new Extension Period subject to the above requirements. There is no limitation on the number of times that the Company may elect to begin an Extension Period. See "Description of Preferred Securities -- General" and "Description of Subordinated Debentures -- Option to Extend Interest Payment Period." Should an Extension Period occur, a holder of Preferred Securities will be required to accrue and recognize income (in the form of original issue discount) in respect of its pro rata share of the interest accruing on the Subordinated Debentures held by IBC Capital for United States federal income tax purposes. As a result, a holder of Preferred Securities will include such income in gross income for United States federal income tax purposes in advance of the receipt of cash, and will not receive the cash related to such income from IBC Capital if the holder disposes of the Preferred Securities prior to the record date for the payment of the related Distributions. See "Certain Federal Income Tax Consequences -- Potential Extension of Interest Payment Period and Original Issue Discount." The Company has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Subordinated Debentures. However, should the Company elect to exercise such right in the future, the market price of the Preferred Securities is likely to be adversely affected. A holder that disposes of its Preferred Securities during an Extension Period, therefore, might not receive the same return on its investment as a holder that continues to hold its Preferred Securities. In addition, as a result of the existence of the Company's right to defer interest payments, the market price of the Preferred Securities may be more volatile than the market prices of other securities on which original issue discount accrues that are not subject to such optional deferrals. TAX EVENT OR INVESTMENT COMPANY EVENT -- REDEMPTION Upon the occurrence and during the continuance of a Tax Event or Investment Company Event (whether occurring before or after , 2001) the Company has the right to redeem the Subordinated Debentures in whole (but not in part) within 90 days following the occurrence of such Tax Event or Investment Company Event and therefore cause a mandatory redemption of the Preferred Securities. The exercise of such right is subject to the Company having received prior approval of the Federal Reserve to do so if then required under applicable guidelines or policies of the Federal Reserve. A "Tax Event" means the receipt by IBC Capital of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or such 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) IBC Capital is, or will be within 90 days of the date of such opinion, subject to United States federal income tax with respect to income received or accrued on the Subordinated Debentures, (ii) interest payable by the Company on the Subordinated Debentures is not, or within 90 days of such opinion, will not be, deductible by the Company, in whole or in part, for United States federal income tax purposes, or (iii) IBC Capital is, or will be within 90 days of the date of the opinion, subject to more than a de minimis amount of other taxes, duties or other governmental charges. An "Investment Company Event" means the receipt by IBC Capital of an opinion of counsel experienced in such matters to the effect that, as a result of the occurrence of a change in law or regulation or a change in 10 13 interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, IBC Capital is or will be considered an "investment company" that is required to be registered under the Investment Company Act, which change becomes effective on or after the date of original issuance of the Preferred Securities. See "Risk Factors -- Possible Tax Law Changes Affecting the Preferred Securities" for a discussion of certain legislative proposals that, if adopted, could give rise to a Tax Event, which may permit the Company to cause a redemption of the Preferred Securities prior to , 2001. EXCHANGE OF PREFERRED SECURITIES FOR SUBORDINATED DEBENTURES The Company will have the right at any time to terminate IBC Capital and cause the Subordinated Debentures to be distributed to the holders of the Preferred Securities in liquidation of IBC Capital. The exercise of such right is 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. See "Description of Preferred Securities -- Redemption or Exchange." SHORTENING OF STATED MATURITY OF SUBORDINATED DEBENTURES The Company will have the right at any time to shorten the maturity of the Subordinated Debentures to a date not earlier than , 2001. The exercise of such right is 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. EXTENSION OF STATED MATURITY OF SUBORDINATED DEBENTURES The Company will also have the right to extend the maturity of the Subordinated Debentures whether or not IBC Capital is terminated and the Subordinated Debentures are distributed to holders of the Preferred Securities to a date no later than the 49th anniversary of the initial issuance of the Preferred Securities, provided that the Company can extend the maturity only if at the time such election is made and at the time of such extension (i) the Company is not in bankruptcy, otherwise insolvent or in liquidation, (ii) the Company is not in default in the payment of any interest or principal on the Subordinated Debentures, and (iii) IBC Capital is not in arrears on payments of Distributions on the Preferred Securities and no deferred Distributions are accumulated. RIGHTS UNDER THE GUARANTEE The Guarantee will be qualified as an indenture under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). State Street Bank and Trust Company ("State Street") will act as the indenture trustee under the Guarantee (the "Guarantee Trustee") for the purposes of compliance with the Trust Indenture Act and will hold the Guarantee for the benefit of the holders of the Preferred Securities. State Street will also act as Debenture Trustee for the Subordinated Debentures and as Property Trustee; Wilmington Trust Company will act as Delaware Trustee under the Trust Agreement. The Guarantee guarantees to the holders of the Preferred Securities the following payments, to the extent not paid by IBC Capital: (i) any accumulated and unpaid Distributions required to be paid on the Preferred Securities, to the extent that IBC Capital has funds on hand available therefor at such time, (ii) the redemption price with respect to any Preferred Securities called for redemption, to the extent that IBC Capital has funds on hand available therefor at such time, and (iii) upon a voluntary or involuntary dissolution, winding-up or liquidation of IBC Capital (unless the Subordinated Debentures are distributed to holders of the Preferred Securities), the lesser of (a) the aggregate of the Liquidation Amount and all accumulated and unpaid Distributions to the date of payment to the extent that IBC Capital has funds on hand available therefor at such time and (b) the amount of assets of IBC Capital remaining available for distribution to holders of the Preferred Securities. The holders of not less than a majority in aggregate Liquidation Amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee 11 14 Trustee in respect of the Guarantee or to direct the exercise of any trust power conferred upon the Guarantee Trustee under the Guarantee. Any holder of the Preferred Securities may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding against IBC Capital, the Guarantee Trustee or any other person or entity. If the Company were to default on its obligation to pay amounts payable under the Subordinated Debentures, IBC Capital would lack funds for the payment of Distributions or amounts payable on redemption of the Preferred Securities or otherwise, and, in such event, holders of Preferred Securities would not be able to rely upon the Guarantee for such amounts. Instead, in the event a Debenture Event of Default shall have occurred and be continuing and such event is attributable to the failure of the Company to pay interest on or principal of the Subordinated Debentures on the payment date on which such payment is due and payable, then a holder of Preferred Securities may institute a legal proceeding directly against the Company for enforcement of payment to such holder of the principal of or interest on such Subordinated Debentures having a principal amount equal to the aggregate Liquidation Amount of the Preferred Securities of such holder (a "Direct Action"). In connection with such Direct Action, the Company will have a right of set-off under the Indenture to the extent of any payment made by the Company to such holder of Preferred Securities in the Direct Action. Except as described herein, holders of Preferred Securities will not be able to exercise directly any other remedy available to the holders of the Subordinated Debentures or assert directly any other rights in respect of the Subordinated Debentures. See "Description of Subordinated Debentures -- Enforcement of Certain Rights by Holders of Preferred Securities" and "-- Debenture Events of Default" and "Description of Guarantee." The Trust Agreement provides that each holder of Preferred Securities by acceptance thereof agrees to the provisions of the Guarantee and the Indenture. LIMITED VOTING RIGHTS Holders of Preferred Securities will generally have limited voting rights relating only to the modification of the Preferred Securities and the exercise of IBC Capital's rights as holder of Subordinated Debentures and the Guarantee. Holders of Preferred Securities will not be entitled to vote to appoint, remove or replace the Property Trustee or the Delaware Trustee, and such voting rights are vested exclusively in the holder of the Common Securities except upon the occurrence of certain events described herein. The Property Trustee, the Administrative Trustees and the Company may amend the Trust Agreement without the consent of holders of Preferred Securities to ensure that IBC Capital will be classified for United States federal income tax purposes as a grantor trust even if such action adversely affects the interests of such holders. See "Description of Preferred Securities -- Voting Rights; Amendment of Trust Agreement" and "-- Removal of IBC Capital Trustees." POSSIBLE TAX LAW CHANGES AFFECTING THE PREFERRED SECURITIES On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill") was released which would, among other things, generally deny interest deductions for interest on an instrument issued by a company that has a maximum weighted average maturity of more than 40 years. The Bill would also generally deny interest deductions for interest on an instrument, issued by a company, that has a maximum term of more than 20 years and that is not shown as indebtedness on the separate balance sheet of the issuer or, where the instrument is issued to a related party (other than a corporation), where the holder or some other related party issues a related instrument that is not shown as indebtedness on the issuer's consolidated balance sheet. If either provision were to apply to the Subordinated Debentures, the Company would be unable to deduct interest on the Subordinated Debentures. However, on March 29, 1996, the Chairmen of the Senate Finance and House Ways and Means Committees issued a joint statement to the effect that it was their intention that the effective date of the President's legislative proposals, if adopted, will be no earlier than the date of appropriate Congressional action. Under current law, the Company will be able to deduct interest on the Subordinated Debentures. There can be no assurance, however, that current or future legislative proposals or final legislation will not affect the ability of the Company to deduct interest on the Subordinated Debentures. Such a change could give rise to a Tax Event, which may permit the Company, upon approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve, to cause a redemption of the Preferred Securities before, as well as after , 2001. See "Description of 12 15 Subordinated Debentures -- Redemption" and "Description of Preferred Securities--Redemption or Exchange -- Tax Event Redemption." See also "Certain Federal Income Tax Consequences -- Effect of Proposed Changes in Tax Laws." MARKET PRICES There can be no assurance as to the market prices for Preferred Securities or Subordinated Debentures that may be distributed in exchange for Preferred Securities if a liquidation of IBC Capital occurs. Accordingly, the Preferred Securities that an investor may purchase, whether pursuant to the offer made hereby or in the secondary market, or the Subordinated Debentures that a holder of Preferred Securities may receive on liquidation of IBC Capital, may trade at a discount to the price that the investor paid to purchase the Preferred Securities offered hereby. In addition, there can be no assurance that the Company will not exercise its option to change the maturity of the Subordinated Debentures as permitted by the terms thereof and of the Indenture. Because holders of Preferred Securities may receive Subordinated Debentures on liquidation of IBC Capital, prospective purchasers of Preferred Securities are also making an investment decision with regard to the Subordinated Debentures and should carefully review all the information regarding the Subordinated Debentures contained herein. See "Description of Subordinated Debentures." TRADING CHARACTERISTICS OF PREFERRED SECURITIES The Preferred Securities may trade at prices that do not fully reflect the value of accrued but unpaid interest with respect to the underlying Subordinated Debentures. A holder of Preferred Securities that disposes of its Preferred Securities between record dates for payments of Distributions (and consequently does not receive a Distribution from IBC Capital for the period prior to such disposition) will nevertheless be required to include accrued but unpaid interest on the Subordinated Debentures through the date of disposition in income as ordinary income and to add such amount to its adjusted tax basis in the Preferred Securities disposed of. Such holder will recognize a capital loss to the extent the selling price (which may not fully reflect the value of accrued but unpaid interest) is less than its adjusted tax basis (which will include accrued but unpaid interest). Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. See "Certain Federal Income Tax Consequences." LACK OF MARKET FOR THE PREFERRED SECURITIES There is no current market for the Preferred Securities. Although the Preferred Securities have been approved for quotation on the Nasdaq National Market, there can be no assurance that an active public market will develop or be maintained for the Preferred Securities. Stifel, Nicolaus & Company, Incorporated has informed the Company that it presently intends to make a market in the Preferred Securities, but no assurance can be given as to the liquidity of the Preferred Securities in the market. See "Market for the Preferred Securities" and "Underwriting." RISK FACTORS RELATING TO THE COMPANY NO ASSURANCE OF SUCCESSFUL INTEGRATION OF BRANCHES Based on September 30, 1996 financial information, the acquisition of the eight branches from First of America Bank -- Michigan, National Association ("FOA Branches") by Independent Bank East Michigan ("IBEM"), a subsidiary of the Company, would increase the assets of IBEM by approximately 107% to $239.4 million. See "Recent Developments." Although the Company has successfully integrated other acquired banks and branch facilities into its operations in the recent past without adversely affecting the profitability of such operations, IBEM's ability to integrate the FOA Branches into its current operations without adversely affecting the level of profitability of IBEM or the Company as a whole cannot be assured. 13 16 IMPACT OF INTEREST RATE CHANGES The Company's results of operations are derived from the operations of the Banks and are principally dependent on net interest income, calculated as the difference between interest earned on loans and investments and the interest expense paid on deposits and other borrowings. Like other banks and financial institutions, the Company's interest income and interest expense are affected by general economic conditions and by the policies of regulatory authorities, including the monetary policies of the Federal Reserve. While management has taken measures intended to manage the risks of operating in a changing interest rate environment, there can be no assurance that such measures will be effective in avoiding undue interest rate risk. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Asset/Liability Management." CREDIT RISKS As a financial institution, the Company is exposed to the risk that customers to whom the Banks have made loans will be unable to repay those loans according to their terms and that collateral securing such loans (if any) may not be sufficient in value to assure repayment. Credit losses could have a material adverse effect on the Company's operating results. REGULATORY RISK The banking industry is heavily regulated. These regulations are primarily intended to protect depositors and the Federal Deposit Insurance Corporation ("FDIC"), not shareholders or other creditors. Regulations affecting the financial institutions industry are undergoing continuous change, and the ultimate effect of such changes cannot be predicted. Regulations and laws affecting the Company and the Banks may be modified at any time, and new legislation affecting financial institutions may be proposed and enacted. There is no assurance that such modifications or new laws will not materially and adversely affect the business, condition or operations of the Company and the Banks. See "Supervision and Regulation." COMPETITION The banking business is highly competitive. The Banks compete with other commercial banks, savings and loan associations, credit unions, mortgage banking companies, securities brokerage companies, insurance companies, and money market mutual funds. Many of these competitors have substantially greater resources than the Company and the Banks and offer certain services that the Company and the Banks do not currently provide. Such competitors may also have greater lending limits than the Banks. The number of competitors may increase as a result of the easing of restrictions on interstate banking effected under the Riegle-Neal Interstate Banking and Efficiency Act of 1994. In addition, non-bank competitors are generally not subject to the extensive regulations applicable to the Company and the Banks. See "Supervision and Regulation." EXPOSURE TO LOCAL ECONOMIC CONDITIONS The success of the Company and the Banks is dependent to a certain extent upon the general economic conditions of the state of Michigan and the geographic markets served by the Banks. No assurance can be given that favorable economic conditions will continue to exist in such markets. PREFERRED SECURITIES ARE NOT INSURED The Preferred Securities are not insured by the Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund ("SAIF") of the FDIC or by any other governmental agency. 14 17 RECENT DEVELOPMENTS The discussion of recent developments contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in such forward-looking statements as a result of, among other things, the factors set forth in the section entitled "Risk Factors." Effective September 18, 1996, Independent Bank East Michigan ("IBEM"), a subsidiary of the Company, agreed to acquire eight branch banking facilities from First of America Bank -- Michigan, National Association ("FOA Branches"). The FOA Branches are located in the thumb region of eastern Michigan, in the counties of Huron and Tuscola. Two of the FOA Branches are located in the City of Bad Axe and one each in the townships or communities of Caseville, Elkton, Kinde, Ubly, Sebewaing, and Gagetown. As of September 30, 1996, the FOA Branches had approximately $121.5 million of deposits and $21.5 million of loans. The acquisition, which is subject to regulatory approval, is expected to be consummated in December 1996, and will be supported by proceeds from this offering. See "Use of Proceeds." The real and personal property of the FOA Branches are being acquired at net book value, and IBEM will pay a loan premium of 1% on the loans to be acquired and a deposit premium of 6.875% on the deposits to be assumed. The Company anticipates amortizing the core deposit premium on a straight line basis over 12 years. The acquisition of the FOA Branches allows the Company to continue to expand its branch banking network and further leverage the managerial resources of the Company and IBEM. The FOA Branches are located in markets similar to those historically served by the Banks and are contiguous to the communities that are currently served by IBEM. The acquisition of the FOA Branches will assist in establishing IBEM as a prominent provider of banking services in the thumb region of eastern Michigan. The following pro forma financial information reflects the impact of the issuance of the Preferred Securities by IBC Capital (and the related issuance of the Subordinated Debentures by the Company) and the purchase of the FOA Branches as if they were acquired by IBEM as of September 30, 1996. This pro forma information is presented for informational purposes only as the purchase of the FOA Branches is not considered the acquisition of a business.
PRO FORMA COMPANY FOA BRANCHES ADJUSTMENTS COMBINED -------- ------------ ----------- --------- (IN THOUSANDS) ASSETS Cash & due from banks......................... $ 26,601 $ 98,954 $ (93,454)(1)(2) $ 32,101 Securities.................................... 159,559 0 (1) Loans and loans held for sale (net of allowance for loan losses).................. 569,087 21,546 215 (2) 590,848 Intangible assets............................. 9,737 0 8,355 (2) 18,092 Other assets.................................. 28,168 1,581 29,749 -------- -------- -------- -------- TOTAL ASSETS........................... $793,152 $122,081 $ $ ======== ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Noninterest bearing......................... $ 68,685 $ 10,470 $ 79,155 Savings and NOW............................. 263,841 53,398 317,239 Time........................................ 209,255 57,613 266,868 -------- -------- -------- TOTAL DEPOSITS......................... 541,781 121,481 663,262 Other borrowings.............................. 190,959 0 $ (13,300)(1) 177,659 Other liabilities............................. 9,679 600 10,279 -------- -------- -------- -------- TOTAL LIABILITIES...................... 742,419 122,081 (13,300) 851,200 Guaranteed Preferred Beneficial Interests in Company's Subordinated Debentures........... (1) Shareholders' equity.......................... 50,733 0 (3) -------- -------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................. $793,152 $122,081 $ $ ======== ======== ======== ========
- ------------------------- (1) To reflect the anticipated deployment of the cash proceeds from the FOA Branches and the issuance of the Preferred Securities. (2) To reflect fair value adjustments relating to assets purchased and liabilities assumed. (3) To reflect the costs related to the issuance of the Preferred Securities. 15 18 USE OF PROCEEDS All of the proceeds from the sale of Preferred Securities will be invested by IBC Capital in the Subordinated Debentures. The net proceeds to the Company from the sale of Subordinated Debentures are estimated to be $ ($ if the Underwriter's over-allotment option is exercised in full). The Company will use the proceeds to increase the capital base of IBEM in contemplation of the pending acquisition of the FOA Branches. If the acquisition of the FOA Branches is consummated prior to the completion of this offering, the proceeds will be used to repay the short-term debt that would be incurred to initially increase the capital base of IBEM. The Company has received a commitment for that short-term financing. See "Capitalization." In addition, the proceeds from the offering will assist the Company in maintaining a Tier 1 capital leverage ratio of approximately 5.2% following the pending acquisition of the FOA Branches and the recent acquisition of North Bank Corporation, and may be used for other general corporate purposes. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Financial Condition -- Capital Resources." Other than the pending acquisition of the FOA Branches, the Company has no current or contemplated agreements or understandings for any acquisitions. The Preferred Securities are expected to qualify as Tier 1 capital. On October 21, 1996, the Federal Reserve approved the use of certain cumulative preferred stock instruments such as the Preferred Securities as Tier 1 capital for bank holding companies such as the Company. The Company has elected to issue the Preferred Securities because the Company expects the Preferred Securities to qualify as Tier 1 capital and the Distributions payable on the Preferred Securities to be a tax deductible expense of the Company. MARKET FOR THE PREFERRED SECURITIES The Preferred Securities have been approved for quotation on the Nasdaq National Market under the symbol IBCPP. Stifel, Nicolaus & Company, Incorporated has informed the Company that it presently intends to make a market in the Preferred Securities. There can be no assurance, however, that an active and liquid trading market will develop or, if developed, that such a market will continue. The offering price and distribution rate have been determined by negotiations among representatives of the Company and the Underwriter, and the offering price of the Preferred Securities may not be indicative of the market price following the offering. See "Underwriting." ACCOUNTING TREATMENT For financial reporting purposes, IBC Capital will be treated as a subsidiary of the Company and, accordingly, the accounts of IBC Capital will be included in the consolidated financial statements of the Company. The Preferred Securities will be presented as a separate line item in the consolidated balance sheet of the Company under the caption "Guaranteed Preferred Beneficial Interests in Company's Subordinated Debentures," and appropriate disclosures about the Preferred Securities, the Guarantee and the Subordinated Debentures will be included in the notes to consolidated financial statements. For financial reporting purposes, the Company will record Distributions payable on the Preferred Securities as an expense in the consolidated statements of operations. All future reports of the Company filed under the Securities Exchange Act of 1934, as amended, will (a) present the securities issued by IBC Capital on the balance sheet as a separate line item entitled "Guaranteed Preferred Beneficial Interests in Company's Subordinated Debentures", (b) include in a footnote to the financial statement disclosure that the sole assets of IBC Capital are the Subordinated Debentures (including the outstanding principal amount, interest rate and maturity date of such Subordinated Debentures), and (c) include, in an audited footnote to the financial statements, disclosure that the Company owns all of the Common Securities of IBC Capital, the sole assets of IBC Capital are the Subordinated Debentures, and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee by the Company of IBC Capital's obligations under the Preferred Securities. 16 19 CAPITALIZATION The following table sets forth (i) the consolidated capitalization of the Company at September 30, 1996, and (ii) the consolidated capitalization of the Company on an as adjusted basis giving effect to the issuance of the Preferred Securities hereby offered by IBC Capital and receipt by the Company of the net proceeds from the corresponding sale of the Subordinated Debentures to IBC Capital, as if the sale of the Preferred Securities had been consummated on September 30, 1996, and assuming the Underwriter's over-allotment option was not exercised.
SEPTEMBER 30, 1996 ---------------------- ACTUAL AS ADJUSTED ------- ----------- (IN THOUSANDS) LONG-TERM DEBT Total long-term debt.................................................. $ 7,500 $ 7,500 Guaranteed Preferred Beneficial Interests in Company's Subordinated Debentures............................................................ 0 (1) SHAREHOLDERS' EQUITY Preferred Stock, no par value; 200,000 shares authorized, none issued and outstanding....................................................... 0 0 Common Stock, par value $1.00 per share; 14,000,000 shares authorized, 2,861,399 shares issued and outstanding............................... 2,861 Capital surplus......................................................... 24,256 (2) Retained earnings....................................................... 23,447 Net unrealized gain on securities available for sale, net of related tax effect................................................................ 169 ------- ------- Total shareholders' equity......................................... 50,733 ------- ------- Total capitalization............................................... $58,233 $ ======= =======
- ------------------------- (1) Preferred Securities representing beneficial interests in an aggregate principal amount of $ of the % Subordinated Debentures of the Company. The Subordinated Debentures will mature on , 2026, which date may be, if certain conditions are met (a) shortened to a date not earlier than , 2001, or (b) extended to a date not later than , 2045. (2) Expenses in the amount of $ relating to the issuance of the Preferred Securities have been netted against capital surplus. The following table sets forth the consolidated capital ratios of the Company (i) at September 30, 1996, (ii) as adjusted giving effect to the issuance of the Preferred Securities hereby offered by IBC Capital and receipt by the Company of the net proceeds from the corresponding sale of the Subordinated Debentures to IBC Capital (assuming the Underwriter's over-allotment option was not exercised), and (iii) pro forma as adjusted giving effect to (ii) and to the acquisition of the FOA Branches, as if both transactions had been consummated on September 30, 1996. See "Recent Developments."
SEPTEMBER 30, 1996 --------------------------------------- PRO FORMA ACTUAL AS ADJUSTED AS ADJUSTED ------ ----------- -------------- CAPITAL RATIOS Shareholders' equity to total assets......................... 6.40% % % Leverage ratio(1)(2)......................................... 5.43 Risk-based capital ratios(2) Tier 1 capital to risk-weighted assets..................... 8.18 Total risk-based capital to risk-weighted assets........... 9.44
- ------------------------- (1) The leverage ratio is Tier 1 capital divided by the difference between quarterly average total assets less intangibles. See "Supervision and Regulation -- The Banks." (2) The capital ratios, as adjusted, are computed including the total estimated net proceeds from the sale of the Preferred Securities, in a manner consistent with Federal Reserve guidelines. 17 20 SELECTED CONSOLIDATED FINANCIAL DATA The selected consolidated financial data set forth below, insofar as it relates to the five years ended December 31, 1995, are derived from the audited consolidated financial statements of the Company. The data for the nine-month periods ended September 30, 1995 and 1996, have been derived from unaudited interim financial statements; however, in the opinion of the Company, such unaudited interim statements include all adjustments (consisting of normal recurring accruals) necessary to fairly present the data for such periods. The results of operations for the nine-month period ended September 30, 1996, are not necessarily indicative of results to be achieved for the full year. Such data are qualified by reference to the consolidated financial statements included elsewhere in this Prospectus or incorporated by reference and should be read in conjunction with such financial statements and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ---------------------- ----------------------------------- 1996 1995 1995 1994 1993(1) --------- --------- --------- --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SUMMARY RESULTS OF OPERATIONS Interest income..................................................... $ 42,598 $ 33,534 $ 45,982 $ 37,820 $ 34,370 Interest expense.................................................... 17,548 12,881 17,900 12,585 12,305 -------- -------- -------- -------- -------- Net interest income............................................... 25,050 20,653 28,082 25,235 22,065 Provision for loan losses........................................... 942 477 636 473 657 -------- -------- -------- -------- -------- Net interest income after provision for loan losses............... 24,108 20,176 27,446 24,762 21,408 Net gains on sale of securities and real estate mortgage loans...... 1,121 295 608 75 1,358 Other noninterest income............................................ 2,860 2,361 3,158 3,026 2,540 Noninterest expense................................................. 19,804 15,897 21,702 19,503 17,535 -------- -------- -------- -------- -------- Income before federal income tax expense and extraordinary item... 8,285 6,935 9,510 8,360 7,771 Federal income tax expense.......................................... 2,466 1,948 2,700 2,329 2,165 -------- -------- -------- -------- -------- Income before extraordinary item.................................. 5,819 4,987 6,810 6,031 5,606 Extraordinary item(2)............................................... 0 0 0 0 0 -------- -------- -------- -------- -------- Net income...................................................... $ 5,819 $ 4,987 $ 6,810 $ 6,031 $ 5,606 ======== ======== ======== ======== ======== PER SHARE DATA(3) Net income Primary........................................................... $ 2.02 $ 1.74 $ 2.38 $ 2.09 $ 1.95 Fully diluted..................................................... 2.02 1.74 2.38 2.09 1.95 Cash dividends declared............................................. 0.74 0.66 0.89 0.72 0.50 Book value(4)....................................................... 17.73 15.81 16.56 14.12 13.57 Dividend payment ratio(5)........................................... 36.52% 37.32% 36.80% 34.62% 25.54% Weighted average shares outstanding................................. 2,878,174 2,859,794 2,861,898 2,890,368 2,878,386 SELECTED BALANCES(4) Assets.............................................................. $793,152 $574,988 $590,147 $516,211 $482,027 Securities(6)....................................................... 149,361 116,307 115,459 130,477 136,147 Loans and loans held for sale....................................... 575,807 417,059 434,091 342,658 288,643 Allowance for loan losses........................................... 6,720 5,249 5,243 5,054 5,053 Deposits............................................................ 541,781 408,526 411,624 409,471 423,620 Shareholders' equity................................................ 50,733 44,906 47,025 40,311 39,049 Long-term debt...................................................... 7,500 0 0 0 2,750 PERFORMANCE RATIOS(7) Net interest margin................................................. 5.45% 5.69% 5.65% 5.88% 5.85% Return on average equity(8)......................................... 15.78 15.60 15.59 15.22 15.21 Return on average assets............................................ 1.16 1.26 1.25 1.25 1.33 Efficiency ratio(9)................................................. 66.39 66.24 66.22 66.55 65.27 ASSET QUALITY RATIOS(10) Allowance for loan losses to loans(4)............................... 1.19% 1.27% 1.25% 1.50% 1.79% Nonperforming loans to loans(4)..................................... 0.61 0.78 0.61 0.84 1.14 Allowance for loan losses to nonperforming loans(4)................. 194.73 164.08 204.80 178.33 157.27 Nonperforming assets to total loans(4).............................. 0.78 0.99 0.79 1.25 2.08 Net loan losses to average loans(7)................................. 0.11 0.10 0.12 0.16 0.15 CAPITAL RATIOS Average equity to average assets.................................... 7.32% 8.04% 8.04% 8.22% 8.72% Tier 1 risk-based capital ratio(4).................................. 8.18 11.22 11.49 11.90 13.86 Total risk-based capital ratio(4)................................... 9.44 12.48 12.75 13.03 15.13 Leverage ratio(4)................................................... 5.23 7.42 7.58 7.40 7.61 RATIO OF EARNINGS TO FIXED CHARGES(11) Including interest on deposits...................................... 1.47x 1.54x 1.53x 1.66x 1.63x Excluding interest on deposits...................................... 2.39 2.88 2.75 6.60 28.95 1992(1) 1991(1) --------- --------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SUMMARY RESULTS OF OPERATIONS Interest income..................................................... $ 36,465 $ 39,175 Interest expense.................................................... 15,150 20,538 -------- -------- Net interest income............................................... 21,315 18,637 Provision for loan losses........................................... 1,225 1,013 -------- -------- Net interest income after provision for loan losses............... 20,090 17,624 Net gains on sale of securities and real estate mortgage loans...... 324 48 Other noninterest income............................................ 2,418 2,373 Noninterest expense................................................. 15,703 14,323 -------- -------- Income before federal income tax expense and extraordinary item... 7,129 5,722 Federal income tax expense.......................................... 2,020 1,619 -------- -------- Income before extraordinary item.................................. 5,109 4,103 Extraordinary item(2)............................................... 0 85 -------- -------- Net income...................................................... $ 5,109 $ 4,018 ======== ======== PER SHARE DATA(3) Net income Primary........................................................... $ 1.78 $ 1.52 Fully diluted..................................................... 1.78 1.38 Cash dividends declared............................................. 0.44 0.39 Book value(4)....................................................... 12.08 10.72 Dividend payment ratio(5)........................................... 24.13% 26.53% Weighted average shares outstanding................................. 2,865,902 2,980,657 SELECTED BALANCES(4) Assets.............................................................. $403,125 $406,469 Securities(6)....................................................... 99,798 93,008 Loans and loans held for sale....................................... 261,634 275,144 Allowance for loan losses........................................... 4,023 3,784 Deposits............................................................ 358,874 364,431 Shareholders' equity................................................ 34,467 30,327 Long-term debt...................................................... 0 1,287 PERFORMANCE RATIOS(7) Net interest margin................................................. 5.88% 5.20% Return on average equity(8)......................................... 15.88 13.56 Return on average assets............................................ 1.26 1.00 Efficiency ratio(9)................................................. 63.06 65.80 ASSET QUALITY RATIOS(10) Allowance for loan losses to loans(4)............................... 1.58% 1.38% Nonperforming loans to loans(4)..................................... 1.24 1.74 Allowance for loan losses to nonperforming loans(4)................. 126.75 78.90 Nonperforming assets to total loans(4).............................. 1.99 2.17 Net loan losses to average loans(7)................................. 0.37 0.30 CAPITAL RATIOS Average equity to average assets.................................... 7.94% 6.82% Tier 1 risk-based capital ratio(4).................................. 14.03 11.90 Total risk-based capital ratio(4)................................... 15.29 12.56 Leverage ratio(4)................................................... 8.05 6.88 RATIO OF EARNINGS TO FIXED CHARGES(11) Including interest on deposits...................................... 1.47x 1.28x Excluding interest on deposits...................................... 25.25 10.23
- ------------------------- (1) Restated to reflect an acquisition accounted for as a pooling of interests. See Note 2 to the Company's Consolidated Financial Statements. (2) The cost, net of related taxes, associated with the early retirement of debt in 1991 is reported as an extraordinary item. (3) Per share data has been adjusted to give retroactive effect to 5% stock dividends in 1996 and 1995. (4) At period end. (5) For 1991, Common Stock cash dividends as a percentage of net income adjusted for preferred stock dividends. (6) Includes securities available for sale. (7) Ratios for the nine-month periods are annualized. (8) For 1991, net income to average common equity has been computed by dividing net income, after deducting dividends on preferred stock then outstanding, by average common equity. (9) Efficiency ratio equals noninterest expense divided by the sum of tax equivalent net interest income, net gains on the sale of securities and loans and other noninterest income. (10) Loans exclude loans held for sale. (11) Earnings consist of income before federal income tax plus interest expense. Fixed charges consist of interest expense. The Company does not currently have any preferred stock outstanding. 18 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis of financial condition and results of operations contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in such forward-looking statements as a result of, among other things, the factors set forth in the section entitled "Risk Factors." The following presents management's discussion and analysis of the Company's consolidated financial condition and results of operations as of the dates and for the periods indicated. This discussion should be read in conjunction with the Company's Consolidated Financial Statements and the accompanying notes, and other financial data appearing elsewhere in this Prospectus. OVERVIEW Over the past five years, the Company has experienced a significant growth in its assets while at the same time retaining a net interest margin that has exceeded 5% of average earning assets. Since December 31, 1990, total assets have increased by 119% to $793.2 million at September 30, 1996. During this same time period, the Company's average return on equity exceeded 15%. Earnings per share have grown by a compounded annual rate of 14.6% to $2.38 for the year ended December 31, 1995, from $1.38 for the year ended December 31, 1991. Earnings per share for the nine months ended September 30, 1996 totaled $2.02, an increase of 16.1% from earnings of $1.74 per share for the first nine months of 1995. Acquisitions of other banks and bank branches accounted for approximately 59% of the $430.7 million increase in total assets from December 31, 1990, to September 30, 1996. Effective May 31, 1996, the Company acquired North Bank Corporation ("NBC") in exchange for cash consideration totaling $15.8 million. On the effective date of that transaction ("NBC Acquisition"), NBC's assets and shareholders' equity totaled $152.0 million and $9.5 million, respectively, and the Company recorded goodwill totaling $7.5 million. On March 7, 1994, the Company acquired KSB Financial, Inc. ("KSB") in exchange for shares of the Company's Common Stock having an aggregate value of $4.4 million. The transaction ("KSB Acquisition") was accounted for as a pooling of interests and, at the effective date of the transaction, KSB's assets and shareholders' equity totaled $37.2 million and $2.8 million, respectively. During 1993, the Company acquired American Home Bank and Pioneer Bank ("1993 Acquisitions") in exchange for cash consideration totaling $7.1 million. On the effective date of these transactions, aggregate assets and shareholders' equity totaled $66.7 million and $6.6 million, respectively, and the Company recorded goodwill totaling approximately $500,000. The Banks' ability to originate and fund rate-sensitive loans with other borrowings has also provided an opportunity to profitably deploy the capital generated by the retention of earnings ("Alternate Loan Funding Strategy"). Other borrowings and federal funds purchased totaled $191.0 million at September 30, 1996, compared to $14.1 million at December 31, 1993. The use of non-deposit sources of funds is structured to complement the Banks' interest-rate risk profile, and the cost of such borrowings is a principal consideration in the Banks' loan and deposit pricing. RESULTS OF OPERATIONS SUMMARY. Net income increased by 16.7% to $5.8 million during the nine months ended September 30, 1996, from $5.0 million during the comparable period of 1995. Earnings per share during those periods were equal to $2.02 and $1.74 in 1996 and 1995, respectively. During 1995, net income increased by 12.9% to a record $6.8 million or $2.38 per share. A year earlier, net income increased by 7.6% to $6.0 million, equal to $2.09 per share, from $5.6 million or $1.95 per share in 1993. The increases in net income principally reflect increases in average earning assets that resulted from the acquisition of banks as well as the successful implementation of the Alternate Loan Funding Strategy. Average earning assets grew by 61.6% to $634.1 million during the first nine-month period of 1996 from 19 22 $392.4 million for the year ended December 31, 1993. Over that same period, the Company's annualized net interest income increased by 51.6% to $33.5 million in 1996 from $22.1 million in 1993. In addition to an increase in the absolute level of average earning assets since 1993, the mix of average earning assets has shifted toward higher yielding loans from other earning assets. During the nine months ended September 30, 1996, loans comprised 76.6% of total average earning assets, up from 66.1% for the year ended December 31, 1993. As a result of the Banks' ability to generate loans, principally single family residential real estate mortgage loans, average earning assets increased by 26.5% to $634.1 million during the nine-month period in 1996, from $501.3 million during the comparable period in 1995, and by 15.1% to $513.4 million during 1995, from $446.0 million in 1994. During those respective periods, net interest income increased by 21.3% and 11.3%. The recent NBC Acquisition also contributed to the increase in average earning assets and net interest income during 1996. KEY PERFORMANCE RATIOS
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, -------------- ----------------------- 1996 1995 1995 1994 1993 ----- ----- ----- ----- ----- Return on Average assets......................................... 1.16% 1.26% 1.25% 1.25% 1.33% Average common equity.................................. 15.78 15.60 15.59 15.22 15.21 Income per common share(1)............................... $2.02 $1.74 $2.38 $2.09 $1.95
- ------------------------- (1) Adjusted to give retroactive effect to 5% stock dividends in 1996 and 1995. The increase in the Company's return on average equity, relative to its return on average assets, reflects management's efforts to profitably maintain or enhance financial leverage within management's established risk parameters. As a result of the NBC Acquisition and the Alternate Loan Funding Strategy, the Company's leverage ratio (average assets divided by average equity) increased to 13.66 during the nine months ended September 30, 1996. During 1995, the leverage ratio was equal to 12.44, compared to 12.16 and 11.47 in 1994 and 1993, respectively. NET INTEREST INCOME. Tax equivalent net interest income increased by 21.1% to $25.9 million during the nine months ended September 30, 1996, from $21.3 million during the comparable period a year earlier. The increase principally reflects the $132.9 million increase in average earning assets generated by the Alternate Loan Funding Strategy and the NBC Acquisition. Tax equivalent net interest income as a percent of average earning assets declined to 5.45% during the nine months ended September 30, 1996, from 5.69% during the comparable period in 1995. Management attributes a portion of the 24 basis point decline to the cost of non-deposit funds that were used to implement the Alternate Loan Funding Strategy. The interest paid on unsecured borrowings that were used to fund the NBC Acquisition offset a portion of the increase in tax equivalent net interest income. 20 23 The following table sets forth the average balance, the interest earned or paid thereon and the effective interest rate for each major category of interest-earning assets and interest-bearing liabilities for the nine months ended September 30, 1996 and 1995. AVERAGE BALANCES AND TAX EQUIVALENT RATES
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------------------------------ 1996 1995 ------------------------------------- ------------------------------------- AVERAGE AVERAGE BALANCE INTEREST YIELD/COST(3) BALANCE INTEREST YIELD/COST(3) -------- -------- ------------- -------- -------- ------------- (DOLLARS IN THOUSANDS) ASSETS Loans -- all domestic(1)(2).... $485,407 $ 35,367 9.73% $369,777 $ 27,225 9.84% Taxable securities............. 98,326 4,873 6.62 95,985 4,572 6.37 Tax-exempt securities(2)....... 37,618 2,522 8.96 30,315 2,163 9.54 Other investments.............. 12,777 636 6.65 5,197 264 6.79 -------- ------- -------- ------- Interest earning assets...... 634,128 43,398 9.14 501,274 34,224 9.13 ------- ------- Cash and due from banks........ 19,792 15,944 Other assets, net.............. 18,913 14,046 -------- -------- Total assets.............. $672,833 $531,355 ======== ======== LIABILITIES Savings and NOW................ $242,641 4,484 2.47 $219,985 4,227 2.57 Time deposits.................. 178,671 7,114 5.32 138,871 4,966 4.78 Long-term debt................. 4,518 241 7.13 0 0 -- Other borrowings............... 133,447 5,709 5.72 80,178 3,688 6.15 -------- ------- -------- ------- Interest bearing liabilities............... 559,277 17,548 4.19 439,034 12,881 3.92 ------- ------- Demand deposits................ 56,687 44,022 Other liabilities.............. 7,603 5,559 Shareholders' equity........... 49,266 42,740 -------- -------- Total liabilities and shareholders' equity.... $672,833 $531,355 ======== ======== Net interest income....... $ 25,850 $ 21,343 ======= ======= Net interest income as a percent of earning assets.................. 5.45% 5.69% ==== ====
- ------------------------- (1) Interest on loans includes net origination fees totaling $2.4 million and $2.0 million for the nine-month periods in 1996 and 1995, respectively. (2) Interest on tax-exempt securities has been adjusted to reflect preferential taxation. The adjustment assumes a marginal tax rate of 34% for each of the nine-month periods. (3) Interest income and expense for the nine-month periods have been annualized. 21 24 Tax equivalent net interest income increased by 10.7% to $29.0 million during 1995 and by 14.1% to $26.2 million in 1994. Such increases reflect double-digit percentage increases in average earning assets during those periods. Average earning assets increased by 15.1% to $513.4 million during 1995, and by 13.6% to $446.0 million during 1994. The Alternate Loan Funding Strategy accounted for approximately 90% of the $67.4 million increase in average earning assets during 1995, while the 1993 Acquisitions accounted for approximately 70% of the $53.5 million increase in average earning assets for the prior year. The following table sets forth the average balance, the interest earned or paid thereon and the effective interest rate for each major category of interest-earning assets and interest-bearing liabilities for the years ended December 31, 1995, 1994 and 1993. AVERAGE BALANCES AND TAX EQUIVALENT RATES
YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------------------ 1995 1994 1993 ---------------------------- ---------------------------- ---------------------------- AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST -------- -------- ------ -------- -------- ------ -------- -------- ------ (DOLLARS IN THOUSANDS) ASSETS Loans -- all domestic(1)(2)............ $382,644 $ 37,654 9.84% $294,968 $ 28,936 9.81% $259,334 $ 26,001 10.03% Taxable securities.......... 93,064 5,919 6.36 108,905 6,537 6.00 88,869 5,976 6.73 Tax-exempt securities(2).... 31,516 2,914 9.25 29,763 2,857 9.60 28,881 2,761 9.56 Other investments........... 6,153 421 6.84 12,335 460 3.73 15,359 535 3.48 -------- ------- -------- ------- -------- ------- Interest earning assets... 513,377 46,908 9.14 445,971 38,790 8.70 392,443 35,273 8.99 ------- ------- ------- Cash and due from banks..... 16,091 14,359 13,996 Other assets, net........... 14,115 21,491 16,226 -------- -------- -------- Total assets.......... $543,583 $481,821 $422,665 ======== ======== ======== LIABILITIES Savings and NOW............. $217,721 5,515 2.53 $213,590 4,819 2.26 $185,419 4,887 2.64 Time deposits............... 141,292 6,955 4.92 150,036 6,273 4.18 150,536 7,140 4.74 Long-term debt.............. 0 0 -- 2,195 120 5.47 525 28 5.33 Other borrowings............ 89,048 5,430 6.10 28,481 1,373 4.82 8,010 250 3.12 -------- ------- -------- ------- -------- ------- Interest bearing liabilities............. 448,061 17,900 4.00 394,302 12,585 3.19 344,490 12,305 3.57 ------- ------- ------- Demand deposits............. 46,539 41,910 37,426 Other liabilities........... 5,296 5,989 3,900 Shareholders' equity........ 43,687 39,620 36,849 -------- -------- -------- Total liabilities and shareholders' equity............. $543,583 $481,821 $422,665 ======== ======== ======== Net interest income... $ 29,008 $ 26,205 $ 22,968 ======= ======= ======= Net interest income as a percent of earning assets............. 5.65% 5.88% 5.85% ==== ==== ====
- ------------------------- (1) Interest on loans includes net origination fees totaling $2.7 million, $2.6 million, and $2.2 million in 1995, 1994, and 1993, respectively. (2) Interest on tax-exempt securities has been adjusted to reflect preferential taxation. The adjustment assumes a marginal tax rate of 34% for each of the three years. For purposes of analysis, tax-exempt loans are included in tax- exempt securities. 22 25 Tax equivalent net interest income was equal to 5.65% of average earning assets during 1995 compared to 5.88% and 5.85% in 1994 and 1993, respectively. Management attributes the 23 basis point decline during 1995 to the average cost of other borrowings utilized to fund its Alternate Loan Funding Strategy. In view of the respective contributions to net income and the Company's return on average equity, management believes that its Alternate Loan Funding Strategy is consistent with its goal to profitably deploy capital. The following table sets forth certain information regarding changes in interest income and interest expense of the Company for the periods indicated. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (i) changes in volume (changes in volume multiplied by the prior period's rate); and (ii) changes in rates (changes in rate multiplied by the prior period's volume). CHANGE IN TAX EQUIVALENT NET INTEREST INCOME
YEAR ENDED DECEMBER 31, NINE MONTHS ENDED --------------------------------------------------------------- SEPTEMBER 30, 1996 COMPARED TO 1995 1995 COMPARED TO 1994 1994 COMPARED TO 1993 --------------------------- ----------------------------- ----------------------------- VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET ------ ----- ------ ------ ------- ------ ------ ------- ------ (DOLLARS IN THOUSANDS) Increase (decrease) in interest income(1) Loans -- all domestic........ $8,428 $(286) $8,142 $8,627 $ 91 $8,718 $3,506 $ (571) $2,935 Taxable securities........... 113 188 301 (991) 373 (618) 1,255 (694) 561 Tax-exempt securities(2)..... 496 (137) 359 165 (108) 57 85 11 96 Other investments............ 377 (5) 372 (303) 264 (39) (111) 36 (75) ------ ----- ------ ------ ------- ------ ------ ------- ------ Total interest income.... 9,414 (240) 9,174 7,498 620 8,118 4,735 (1,218) 3,517 ------ ----- ------ ------ ------- ------ ------ ------- ------ Increase (decrease) in interest expense Savings and NOW.............. 423 (166) 257 95 601 696 688 (756) (68) Time deposits................ 1,539 609 2,148 (382) 1,064 682 (24) (843) (867) Long-term debt............... 241 0 241 (120) 0 (120) 91 1 92 Other borrowings............. 2,295 (274) 2,021 3,594 463 4,057 930 193 1,123 ------ ----- ------ ------ ------- ------ ------ ------- ------ Total interest expense... 4,498 169 4,667 3,187 2,128 5,315 1,685 (1,405) 280 ------ ----- ------ ------ ------- ------ ------ ------- ------ Net interest income...... $4,916 $(409) $4,507 $4,311 $(1,508) $2,803 $3,050 $ 187 $3,237 ====== ===== ====== ====== ======= ====== ====== ======= ======
- ------------------------- (1) The change in interest due to changes in both balance and rate has been allocated to change due to balance and change due to rate in proportion to the relationship to the absolute dollar amounts of change in each. (2) Interest on tax exempt securities has been adjusted to reflect preferential taxation. The adjustment assumes a marginal tax rate of 34% for each of the three years. The following table sets forth the composition of average interest-earning assets and interest-bearing liabilities as a percent of average total interest-earning assets for each of the periods indicated. COMPOSITION OF AVERAGE EARNING ASSETS AND INTEREST PAYING LIABILITIES
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ----------------- ---------------------------- 1996 1995 1995 1994 1993 ------ ------ ------ ------ ------ As a percent of average earning assets Loans -- all domestic.................................................. 76.55% 73.77% 74.53% 66.14% 66.08% Other earning assets................................................... 23.45 26.23 25.47 33.86 33.92 ------ ------ ------ ------ ------ Average earning assets............................................. 100.00% 100.00% 100.00% 100.00% 100.00% ====== ====== ====== ====== ====== Savings and NOW........................................................ 38.26% 43.89% 42.41% 47.89% 47.25% Time deposits.......................................................... 28.18 27.70 27.52 33.64 38.36 Other borrowings and long-term debt.................................... 21.76 16.00 17.35 6.88 2.17 ------ ------ ------ ------ ------ Average interest bearing liabilities............................... 88.20% 87.59% 87.28% 88.41% 87.78% ====== ====== ====== ====== ====== Earning asset ratio..................................................... 94.25% 94.34% 94.44% 92.56% 92.85% Free-funds ratio(1)..................................................... 11.80 12.41 12.72 11.59 12.22
- ------------------------- (1) Represents the percentage of average earning assets that are funded by non-interest bearing liabilities and capital. 23 26 Increases in loans as a percent of average earning assets has had a favorable impact on tax equivalent net interest income as a percent of average earning assets. For the first nine months of 1996 and 1995, loans were equal to approximately 76.6% and 73.8% of average earning assets, respectively. Loans were equal to approximately 74.5% of average earning assets in 1995 and 66.1% in both 1994 and 1993. Management expects that the consummation of the pending acquisition of the FOA Branches will initially reduce loans as a percent of average earning assets and will have a corresponding negative impact on the Company's tax equivalent net interest income as a percent of average earning assets. Over time, management expects to reinvest the assets into loans following consummation of the transaction. PROVISION FOR LOAN LOSSES. In addition to a subjective analysis of general and local economic conditions, management's assessment of the allowance for loan losses is based upon the amount and composition of loan balances, a systematic review of specific credits and historical loss experience, as well as the absolute level of nonperforming and impaired loans. The provision for loan losses totaled $942,000 during the nine months ended September 30, 1996. The increase from $477,000 during the comparable period in 1995 resulted from the application of management's allocation methodology (as described above) to the loans associated with the NBC Acquisition and the increase in loans, excluding loans held for sale ("Portfolio Loans"). The provision for loan losses totaled $636,000 in 1995, compared to $473,000 in 1994 and $657,000 in 1993. Increases in the provision during 1995 principally reflect the increase in Portfolio Loans. The decrease in the provision during 1994 reflects a subsequent decline in substandard assets that had been acquired as a result of the 1993 Acquisitions and the KSB Acquisition in 1994, and the corresponding increase in the unallocated portion of the allowance for loan losses. NONINTEREST INCOME. Noninterest income increased by 49.9% during the nine months ended September 30, 1996, from $2.7 million during the comparable period in 1995. The increase reflects increases in net gains on the sale of real estate mortgage loans, as well as increases in service charges on deposit accounts and other income. Noninterest income totaled $3.8 million in 1995 compared to $3.1 million and $3.9 million in 1994 and 1993, respectively. The increase in net gains on real estate mortgage loans accounted for approximately 72% of the $665,000 increase in noninterest income during 1995. A year earlier, a decline in net gains on the sale of such loans and net losses on the sale of securities available for sale accounted for the $797,000 decrease in noninterest income. The following table sets forth the principal components of noninterest income for each of the periods indicated. NONINTEREST INCOME
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ---------------- -------------------------- 1996 1995 1995 1994 1993 ------ ------ ------ ------ ------ (IN THOUSANDS) Service charges on deposit accounts................. $1,641 $1,439 $1,919 $1,892 $1,589 Net gains (losses) on asset sales Real estate mortgage loans........................ 1,251 405 728 249 721 Securities........................................ (130) (110) (120) (174) 637 Real estate mortgage loan servicing................. 299 273 371 335 217 PrimeVest commission................................ 82 55 73 120 139 Other............................................... 838 594 795 679 595 ------ ------ ------ ------ ------ Total noninterest income....................... $3,981 $2,656 $3,766 $3,101 $3,898 ====== ====== ====== ====== ======
Service charges on deposit accounts, the largest component of noninterest income, totaled $1.6 million and $1.4 million during the nine months ended September 30, 1996 and 1995, respectively. The $202,000 increase in service charges reflects the NBC Acquisition. During 1995, such service charges totaled $1.9 million, essentially unchanged from 1994. The $303,000 increase to $1.9 million in 1994 from $1.6 million in 1993, principally reflects the impact of the 1993 Acquisitions. 24 27 Net gains on the sale of real estate mortgage loans totaled $1.3 million and $405,000 during the nine months ended September 30, 1996 and 1995, respectively. Such gains totaled $728,000 in 1995, compared to $249,000 in 1994 and $721,000 in 1993. Although the majority of the 209% increase in net gains on the sale of real estate loans during 1996 reflects favorable economic conditions and an increase in loans sold, management attributes 45% of the increase to the impact of Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS #122"), and the increased sale of related servicing rights. See "Statements of Financial Accounting Standards." In addition to an increase in loans sold, the 192% increase during 1995 reflects an increase in net gains as a percent of real estate mortgage loans sold. The overall decline in net gains during 1994 reflects the combined effects of a decrease in loans sold as well as a decrease in net gains as a percent of loans sold. The following table sets forth certain information with respect to the origination and sale of real estate mortgage loans, including the net gains recognized on the sale of such loans. NET GAINS ON THE SALE OF REAL ESTATE MORTGAGE LOANS
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, --------------------- -------------------------------- 1996 1995 1995 1994 1993 -------- -------- -------- ------- ------- (DOLLARS IN THOUSANDS) Real estate mortgage loan originations......................... $166,100 $118,100 $163,500 $97,800 $80,200 Real estate mortgage loan sales........ 80,000 33,400 52,000 38,100 50,100 Real estate mortgage loan servicing rights sold.......................... 28,800 11,900 19,700 1,500 500 Net gains on the sale of real estate mortgage loans....................... 1,251 405 728 249 721 Net gains as a percent of real estate mortgage loan sales.................. 1.56% 1.21% 1.40% 0.65% 1.44%
Consistent with management's desire to maintain profitable leverage, the Banks continue to retain rate-sensitive real estate mortgage loans and sell the majority of fixed-rate obligations. See "Financial Condition -- Asset/Liability Management." Accordingly, the volume of loans sold is dependent upon the Banks' ability to sustain or increase the origination of real estate mortgage loans as well as consumer demand for fixed-rate loans. Net gains on the sale of such loans are also dependent upon economic and competitive factors as well as the Banks' ability to effectively manage exposure to changes in interest rates. To maintain customer relationships, the Banks have historically retained servicing rights on real estate mortgage loans sold. During the nine months ended 1996 and the year ended 1995, however, the Banks sold the related servicing rights on $28.8 million and $19.7 million, respectively, of real estate mortgage loans, principally loans underwritten pursuant to government guarantees and loans that have been originated in markets that are not served by the Banks' branch networks. The Company realized net losses of $130,000 and $110,000 on the sale of securities available for sale during the nine months ended September 30, 1996 and 1995, respectively. The Company also realized net losses of $120,000 in 1995 and $174,000 in 1994 compared to net gains of $637,000 in 1993. Future gains and losses will be dependent upon the Banks' asset/liability management needs as well as the slope of the yield curve, the level of interest rates and other pertinent factors. See "Financial Condition -- Asset/Liability Management." NONINTEREST EXPENSE. Noninterest expense totaled $19.8 million and $15.9 million during the nine months ended September 30, 1996 and 1995, respectively. Noninterest expense totaled $21.7 million in 1995 compared to $19.5 million in 1994 and $17.5 million in 1993. Salaries and benefits are the largest component of noninterest expense and account for the majority of the increase in total noninterest expense. A reduction in FDIC insurance assessments, however, limited the increase in total noninterest expense. 25 28 The following table sets forth the principal components of noninterest expense for each of the periods indicated. NONINTEREST EXPENSE
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ------------------ ----------------------------- 1996 1995 1995 1994 1993 ------- ------- ------- ------- ------- (IN THOUSANDS) Salaries....................................... $ 7,450 $ 5,887 $ 8,005 $ 7,817 $ 6,593 Performance-based compensation and benefits.... 2,280 1,703 2,351 1,052 1,182 Other benefits................................. 1,674 1,313 1,807 1,693 1,541 ------- ------- ------- ------- ------- Total salaries and benefits............... 11,404 8,903 12,163 10,562 9,316 Occupancy, net................................. 1,458 1,135 1,548 1,392 1,237 Furniture and fixtures......................... 1,337 975 1,345 1,248 968 Loan and collection............................ 396 748 1,030 626 724 Deposit insurance.............................. 92 454 499 966 858 Other.......................................... 5,117 3,682 5,117 4,709 4,432 ------- ------- ------- ------- ------- Total noninterest expense................. $19,804 $15,897 $21,702 $19,503 $17,535 ======= ======= ======= ======= =======
The Company and the Banks maintain compensation policies and practices that are intended to provide incentives for superior performance and align the interests of officers and employees with those of the Company's shareholders. Such "pay for performance" compensation plans include annual cash performance awards, the Employee Stock Ownership Plan, the Employee Stock Option Plan and the Incentive Share Grant Plan. Including commissions relating to the origination of real estate mortgage loans, aggregate performance-based compensation accounts for approximately 23% of the $2.5 million increase in salaries and benefits during the nine months ended September 30, 1996, and approximately 81% of the $1.6 million increase during 1995. The NBC Acquisition and the 1993 Acquisitions also had a substantive impact on salaries and benefits as well as total noninterest expense. Management estimates that the NBC Acquisition accounted for 33% and 45% of the increase in salaries and benefits and total noninterest expense, respectively, during the nine months ended September 30, 1996. During 1994, all of the increase in salaries and benefits and 90% of the increase in total noninterest expense can be attributed to the 1993 Acquisitions. Costs associated with new branch facilities, a write down of other real estate as well as the introduction of the "EZ Money" check card and related ATM conversions have also contributed to the increases in total noninterest expense during the nine months ended September 30, 1996. Costs associated with the new loan production offices or otherwise relating to the origination of real estate mortgage loans contributed to the increase in occupancy, furniture and fixtures and other noninterest expense during 1995. Environmental remediation costs associated with two foreclosed properties also contributed approximately $200,000 to the increase in noninterest expense. These remediation costs were covered under the Michigan Underground Storage Tank Financial Assurance Fund ("MUSTFA"). MUSTFA announced that it was unable to fund all claims, however, and the Company has provided for all remaining remediation costs as estimated by environmental engineers. FINANCIAL CONDITION SUMMARY. The Banks have committed significant resources to loan origination efforts, including two new loan production offices during the second quarter of 1995. Portfolio Loans totaled $565.4 million at September 30, 1996, compared to $418.0 million and $336.7 million at December 31, 1995 and 1994, respectively. Excluding the impact of the NBC Acquisition, rate-sensitive real estate mortgage loans accounted for approximately 67% and 72% of the increase in Portfolio Loans during the first nine months of 1996 and for all of 1995, respectively. 26 29 In addition to the proceeds from security sales and maturities, the Banks have relied on other borrowings to fund the increase in Portfolio Loans. The use of such nondeposit funds, principally advances from the FHLB, complements the Banks' core deposits and may further assist the Banks' efforts to manage their exposure to changes in interest rates. See "-- Asset/Liability Management." Such advances totaled $131.0 million at September 30, 1996, compared to $103.0 million and $40.0 million at December 31, 1995 and 1994, respectively. SECURITIES. The Banks maintain diversified securities portfolios that include obligations of the U.S. Treasury and government-sponsored agencies as well as securities issued by states and political subdivisions and mortgage-backed securities. Securities available for sale are carried at fair value and unrealized gains and losses, after consideration of applicable federal income taxes, are recognized as a separate component of shareholders' equity. Management has the intent and the Banks have the ability to hold other securities to maturity. These securities are carried at amortized cost without adjustment for unrealized gains or losses. Although there are no current plans to sell securities, management continues to evaluate the Banks' asset/liability management needs and attempts to maintain a portfolio structure that will improve earnings while maintaining sufficient liquidity and cash flow to fund loans. The following tables set forth the book value of securities at the specified dates and certain information with respect to the securities portfolios, including gross unrealized gains and losses. SECURITIES
DECEMBER 31, SEPTEMBER 30, ------------------------------ 1996 1995 1994 1993 ------------- ------- ------- -------- (IN THOUSANDS) AVAILABLE FOR SALE U.S. Treasury....................................... $ 22,433 $23,272 $34,724 $ 30,330 U.S. Government agencies............................ 21,205 6,623 0 0 States and political subdivisions................... 18,669 9,290 0 0 Mortgage-backed securities.......................... 56,487 37,722 11,684 0 Other securities.................................... 3,693 10,646 6,348 0 -------- ------- ------- -------- Total.......................................... $ 122,487 $87,553 $52,756 $ 30,330 ======== ======= ======= ======== HELD TO MATURITY U.S. Treasury....................................... $ 0 $ 0 $ 5,738 $ 29,385 U.S. Government agencies............................ 1,485 2,559 11,004 6,601 States and political subdivisions................... 20,137 20,142 27,240 27,241 Mortgage-backed securities.......................... 3,865 4,487 26,545 35,295 Other Securities.................................... 1,387 718 7,194 7,295 -------- ------- ------- -------- Total.......................................... $ 26,874 $27,906 $77,721 $105,817 ======== ======= ======= ========
UNREALIZED AMORTIZED ---------------- FAIR COST GAINS LOSSES VALUE --------- ------ ------ -------- (IN THOUSANDS) SECURITIES AVAILABLE FOR SALE September 30, 1996...................................... $ 122,231 $ 980 $ 724 $122,487 December 31, 1995....................................... 86,471 1,538 456 87,553 December 31, 1994....................................... 55,968 0 3,212 52,756 December 31, 1993....................................... 30,330 120 0 30,450 SECURITIES HELD TO MATURITY September 30, 1996...................................... $ 26,874 $ 891 $ 67 $ 27,698 December 31, 1995....................................... 27,906 1,157 32 29,031 December 31, 1994....................................... 77,721 976 1,247 77,450 December 31, 1993....................................... 105,817 4,386 472 111,175
27 30 The following table sets forth certain information with respect to the proceeds from the sale of securities available for sale, including related realized gains and losses. PROCEEDS FROM THE SALE OF SECURITIES AVAILABLE FOR SALE
REALIZED --------------- PROCEEDS GAINS LOSSES -------- ----- ------ (IN THOUSANDS) NINE MONTHS ENDED September 30, 1996................................................... $ 15,907 $ 44 $174 September 30, 1995................................................... 13,152 7 117 YEAR ENDED December 31, 1995.................................................... $ 14,054 $ 8 $128 December 31, 1994.................................................... 28,384 228 402 December 31, 1993.................................................... 34,341 658 21
LOAN PORTFOLIOS. Management believes that the stable and diversified economies of the Banks' principal markets provide attractive lending opportunities. In addition to the communities served by the Banks' branch networks and loan production offices, the principal lending markets include nearby communities and metropolitan areas. Subject to established underwriting criteria, the Banks may also participate in commercial lending transactions with certain non-affiliated banks and purchase real estate mortgage loans from third-party originators. Management believes that its decentralized structure provides the Banks with important advantages in serving the needs of its principal lending markets. Although the management and Board of Directors of each of the Banks retain authority and responsibility for all credit decisions, each of the Banks has adopted uniform underwriting standards. The Company's loan committee and the centralization of credit services promote compliance with these underwriting standards and provide internal controls that are consistent with the needs of a decentralized management structure. The Company's centralized credit services, which include credit analysis and commercial loan review, also provide economies of scale. The centralization of retail loan services further provides for consistent service quality and facilitates compliance with applicable consumer protection laws and regulations. The following table sets forth the principal components of Portfolio Loans at the dates indicated. LOAN PORTFOLIO COMPOSITION
DECEMBER 31, ------------------------------------------- SEPTEMBER 30, 1996 1995 1994 ------------------- ------------------- ------------------- AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT -------- ------- -------- ------- -------- ------- (DOLLARS IN THOUSANDS) Real estate Residential first mortgages........ $263,224 46.6% $211,690 50.6% $158,432 47.1% Residential home equity............ 31,528 5.6 19,733 4.7 17,704 5.3 Construction and land development..................... 46,350 8.2 29,328 7.0 27,289 8.1 Other.............................. 84,428 14.9 56,675 13.6 44,982 13.4 Consumer............................. 92,137 16.3 64,821 15.5 49,075 14.6 Commercial........................... 31,534 5.6 23,403 5.6 23,388 6.9 Agricultural......................... 16,217 2.8 12,394 3.0 15,855 4.6 -------- ----- -------- ----- -------- ----- Total loans..................... $565,418 100.0% $418,044 100.0% $336,725 100.0% ======== ===== ======== ===== ======== =====
28 31 The following table sets forth the principal components of nonperforming assets at the dates indicated. NONPERFORMING ASSETS
DECEMBER 31, SEPTEMBER 30, -------------------------- 1996 1995 1994 1993 ------------- ------ ------ ------ (DOLLARS IN THOUSANDS) Non-accrual loans....................................... $ 2,089 $1,886 $2,052 $1,707 Loans 90 days or more past due and still accruing interest.............................................. 1,159 427 254 408 Restructured loans...................................... 203 247 528 1,098 ------ ------ ------ ------ Total nonperforming loans.......................... 3,451 2,560 2,834 3,213 Other real estate....................................... 956 760 1,381 2,647 ------ ------ ------ ------ Total nonperforming assets......................... $ 4,407 $3,320 $4,215 $5,860 ====== ====== ====== ====== As a percent of total loans Nonperforming loans................................... 0.61% 0.61% 0.84% 1.14% Nonperforming assets.................................. 0.78 0.79 1.25 2.08
The increases in nonperforming loans and assets during 1996 were the result of the NBC Acquisition. In the absence of that transaction, nonperforming loans would have declined to $2.5 million, equal to 0.52% of Portfolio Loans at September 30, 1996, and nonperforming assets would have declined to $3.3 million or 0.68% of Portfolio Loans. The consistent decline in nonperforming loans and assets during 1995 and 1994 largely reflects a decrease in substandard assets originally acquired in connection with the KSB Acquisition in 1994, as well as the 1993 Acquisitions. Nonperforming assets associated with these acquisitions totaled $1.4 million, $2.3 million, and $2.0 million at December 31, 1995, 1994, and 1993, respectively. Impaired loans totaled approximately $2.2 million at September 30, 1996. In addition to certain nonperforming loans, such impaired loans include commercial and agricultural loans totaling $800,000 that have been separately identified as impaired. Certain impaired loans with a balance of approximately $1.0 million at September 30, 1996, had specific allocations of the allowance for loan losses totaling approximately $125,000. The Company's average investment in impaired loans was approximately $2.5 million during the nine-month period ended September 30, 1996, and interest income recognized on impaired loans during that period totaled approximately $110,000. 29 32 The following table sets forth an analysis of the changes in the allowance for loan losses at each of the dates indicated. ALLOWANCE FOR LOAN LOSSES
DECEMBER 31, SEPTEMBER 30, -------------------------------------------------------- 1996 1995 1994 1993(1) 1992(1) 1991(1) ------------- -------- -------- -------- -------- -------- (DOLLARS IN THOUSANDS) Loans outstanding at the end of the period (net of unearned fees).............. $ 575,807 $434,091 $342,658 $288,643 $261,634 $275,144 ======== ======== ======== ======== ======== ======== Average loans outstanding for the period (net of unearned fees).............. $ 485,407 $382,644 $294,968 $259,334 $267,801 $260,594 ======== ======== ======== ======== ======== ======== Balance of allowance for loan losses at beginning of period.............. $ 5,243 $ 5,054 $ 5,053 $ 4,023 $ 3,784 $ 3,541 -------- -------- -------- -------- -------- -------- Loans charged-off Real estate......................... 6 24 14 38 69 51 Commercial and agricultural......... 58 113 311 306 566 421 Installment......................... 601 575 546 370 581 613 -------- -------- -------- -------- -------- -------- Total loans charged-off........... 665 712 871 714 1,216 1,085 -------- -------- -------- -------- -------- -------- Recoveries of loans previously charged-off......................... Real estate......................... 8 28 6 11 26 3 Commercial and agricultural......... 82 115 151 156 91 123 Installment......................... 180 122 242 164 113 189 -------- -------- -------- -------- -------- -------- Total recoveries.................. 270 265 399 331 230 315 -------- -------- -------- -------- -------- -------- Net loans charged-off............. 395 447 472 383 986 770 Additions to allowance charged to operating expense................... 942 636 473 657 1,225 1,013 Allowance on loans acquired........... 930 0 0 756 0 0 -------- -------- -------- -------- -------- -------- Balance at end of period.............. $ 6,720 $ 5,243 $ 5,054 $ 5,053 $ 4,023 $ 3,784 ======== ======== ======== ======== ======== ======== Net loans charged-off as a percent of average loans outstanding for the period(2)....................... 0.11% 0.12% 0.16% 0.15% 0.37% 0.30% Allowance for loan losses as a percent of loans outstanding at the end of the period.......................... 1.17 1.21 1.48 1.75 1.54 1.38 Allowance for loan losses as a percent of nonperforming assets............. 194.73 204.80 178.33 157.27 126.75 78.90
- ------------------------- (1) Restated to reflect an acquisition accounted for as a pooling of interests. See Note 2 to Consolidated Financial Statements. (2) September 30, 1996 information is annualized. The allowance for loan losses is maintained at a level that management considers appropriate, based upon its assessment of relevant circumstances, by charges to the associated provision for loan losses. See "-- Provision for Loan Losses." In performing its assessment, management allocates a portion of the allowance to specific loans and loan portfolios. Although the allowance for loan losses has declined as a percent of Portfolio Loans, the unallocated portion of the allowance increased to 57.3% of the total allowance at September 30, 1996, from 41.5% at December 31, 1993. The following table sets forth management's allocation of the allowance for loan losses to specific loans and loan portfolios for each of the periods indicated. ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
DECEMBER 31, SEPTEMBER 30, -------------------------- 1996 1995 1994 1993 ------------- ------ ------ ------ (IN THOUSANDS) Commercial and agricultural............................. $ 1,761 $1,612 $1,655 $2,222 Real estate mortgage.................................... 229 162 177 270 Installment............................................. 879 597 474 464 Unallocated............................................. 3,851 2,872 2,748 2,097 ------ ------ ------ ------ Total.............................................. $ 6,720 $5,243 $5,054 $5,053 ====== ====== ====== ======
30 33 Loans charged against the allowance for loan losses, net of recoveries ("Net Losses"), were $395,000 during the nine months ended September 30, 1996, compared to $282,000 during the comparable period of 1995. The NBC Acquisition accounted for $90,000 of the $113,000 increase in Net Losses during 1996. Net Losses in 1995 were $447,000 compared to $472,000 and $383,000 in 1994 and 1993, respectively. Management estimates that Net Losses relating to loans that were acquired as a result of the 1993 Acquisitions and the KSB Acquisition in 1994 were $50,000 in 1995, $130,000 in 1994, and $60,000 in 1993. DEPOSITS AND BORROWINGS. Deposits totaled $541.8 million at September 30, 1996, compared to $411.6 million at December 31, 1995. The NBC Acquisition accounted for the majority of the $130.2 million increase in deposits. Notwithstanding the purchase of a branch facility with deposits totaling $14.4 million during 1995, total deposits at December 31, 1995 increased only slightly from $409.5 million one year earlier. The following table sets forth average deposit balances and the weighted average rates paid thereon for the dates indicated. AVERAGE DEPOSITS
YEAR ENDED DECEMBER 31, SEPTEMBER 30, -------------------------------------------------------- 1996 1995 1994 1993 ---------------- ---------------- ---------------- ---------------- AVERAGE AVERAGE AVERAGE AVERAGE BALANCE RATE BALANCE RATE BALANCE RATE BALANCE RATE -------- ---- -------- ---- -------- ---- -------- ---- (DOLLARS IN THOUSANDS) Noninterest bearing demand.......... $ 56,687 $ 46,539 $ 41,910 $ 37,426 Savings and NOW..................... 242,641 2.47% 217,721 2.53% 213,590 2.26% 185,419 2.64% Time deposits....................... 178,671 5.32 141,292 4.92 150,036 4.18 150,536 4.74 -------- -------- -------- -------- Total........................... $477,999 3.24% $405,552 3.08% $405,536 2.74% $373,381 3.22% ======== ======== ======== ========
The following table summarizes time deposits in amounts of $100,000 or more by time remaining until maturity as of September 30, 1996. TIME DEPOSITS OVER $100,000
(IN THOUSANDS) Three months or less................................. $ 12,779 Over three through six months........................ 2,718 Over six months through one year..................... 2,245 Over one year........................................ 7,751 ------- Total........................................... $ 25,493 =======
The Banks' competitive position within many of the markets served by the branch networks may limit the ability to materially increase deposits without adversely impacting the weighted-average cost of core deposits. Accordingly, the Banks have relied on other borrowed funds, principally advances from the FHLB, to fund loans as part of its Alternate Loan Funding Strategy, while utilizing pricing strategies that are intended to reduce the weighted-average cost of core deposits. The use of non-deposit funds is structured to complement the Banks' existing interest rate risk profile and may further reduce the Banks' exposure to depositors' options to withdraw funds prior to maturity. The Company utilizes federal funds purchased and other borrowings, including FHLB advances, to fund a portion of its earning assets. During the nine months ended September 30, 1996, such other borrowings funded approximately 21.8% of average earning assets compared to 17.4% and 6.9% during the years ended December 31, 1995 and 1994, respectively. FHLB advances are secured by the Banks' unencumbered qualifying real estate mortgage loans as well as certain securities equal to 170% of outstanding advances. To increase its aggregate borrowing capacity, management may elect to secure FHLB advances by pledging specific collateral representing 105% to 125% of outstanding advances. Management believes brokered certificates of deposit to be a viable alternative to further diversify the Banks' funding sources. 31 34 CAPITAL RESOURCES. The ability to profitably deploy the capital generated by the Company's results of operations or otherwise maintain financial leverage is critical to management's mission to create value for the Company's shareholders. During periods when management believes there has been an absence of suitable acquisition candidates, the Company's Alternate Loan Funding Strategy has made important contributions to the Company's net income and return on average equity. In view of the franchise value associated with core deposits and other customer relationships, management believes that its approach to acquisitions has also provided value to the Company's shareholders. The following table sets forth the Company's capital ratios at the dates indicated. CAPITAL RATIOS
DECEMBER 31, SEPTEMBER 30, -------------- 1996 1995 1994 ------------- ----- ----- Shareholders' equity to total assets...................................... 6.40% 7.97% 7.81% Leverage ratio............................................................ 5.23 7.58 7.40 Tier 1 capital to risk-weighted assets.................................... 8.18 11.49 11.90 Total risk-based capital to risk-weighted assets.......................... 9.44 12.75 13.03
The Company's dividend policies and its share repurchase plan have been integral components of management's efforts to maintain profitable financial leverage. Cash dividends declared were equal to 36.5% of earnings for the first nine months of 1996, 36.8% and 34.6% for the years ended December 31, 1995 and 1994, respectively. Although there are no current plans to repurchase shares of its capital stock, the Company purchased 35,900 and 40,000 shares of its Common Stock during 1995 and 1994, respectively. Shareholders' equity totaled $50.7 million at September 30, 1996, compared to $47.0 million and $40.3 million at December 31, 1995 and 1994, respectively. The increase in shareholders' equity reflects the retention of earnings as well as the value of shares of Common Stock that have been issued pursuant to the Incentive Share Grant Plan and the Company's various stock option plans. As a result of the NBC Acquisition, shareholders' equity declined to 6.40% of total assets at September 30, 1996, compared to 7.97% and 7.81% at December 31, 1995, and 1994, respectively. In the absence of that transaction, however, shareholders' equity would have been largely unchanged from December 31, 1995. ASSET/LIABILITY MANAGEMENT. The asset/liability management efforts of the Company and the Banks are intended to identify and evaluate opportunities to structure the balance sheet in a manner that is consistent with management's mission to maintain profitable financial leverage within established risk parameters. Accordingly, management's evaluations of alternate strategies carefully consider the likely impact on the Banks' risk profile as well as the anticipated contributions to earnings. Management employs simulation analyses to evaluate the potential changes in the Banks' net interest income and market value of portfolio equity that result from changes in interest rates. Such analyses further anticipate the potential changes in the slope of the U.S. Treasury yield curve as well as changes in prepayment rates on certain assets and premature withdrawals of certificates of deposit that will likely accompany changes in interest rates. Consistent with management's intent to maintain profitable financial leverage, the marginal cost of non-deposit funds is a principal consideration in the Banks' decision to sell or retain real estate mortgage loans. Marginal funding costs are also an integral component in pricing Portfolio Loans. Management's ongoing evaluations have determined that the retention of 15- and 30-year fixed-rate real estate mortgage loans is not consistent with its goal to profitably deploy capital or the Banks' asset/liability management needs. Accordingly, the majority of such loans are sold to mitigate exposure to changes in interest rates. Adjustable-rate and balloon real estate mortgage loans may, however, be profitably funded with FHLB advances and the retention of such loans is a principal focus of the Alternate Loan Funding Strategy. See "Results of Operations--Noninterest Income." 32 35 The following table sets forth the anticipated maturity or repricing, including estimated prepayments, of interest-earning assets and interest-bearing liabilities at September 30, 1996. INTEREST RATE SENSITIVITY
SEPTEMBER 30, 1996 ---------------------------------------------------------------- DAYS ------------------------------------------ YEARS 91 -- 181 -- ------------------- 0 -- 30 31 -- 90 180 365 1 -- 5 5+ TOTAL -------- -------- -------- --------- -------- -------- -------- (DOLLARS IN THOUSANDS) ASSETS Loans and loans held for sale........... $102,929 $ 44,398 $ 52,012 $ 79,531 $212,672 $ 84,265 $575,807 Taxable securities...................... 12,312 7,593 5,475 6,680 46,436 42,257 120,753 Tax-exempt securities................... 799 15 294 1,714 16,570 19,414 38,806 -------- -------- -------- --------- -------- -------- -------- Interest earning assets............... 116,040 52,006 57,781 87,925 275,678 145,936 735,366 -------- -------- -------- --------- -------- -------- Noninterest earning assets.............. 57,786 -------- Total Assets........................ $793,152 ======== LIABILITIES AND SHAREHOLDERS' EQUITY Demand, savings and NOW................. 42,892 12,235 17,987 29,291 104,521 125,600 $332,526 Time deposits........................... 20,083 26,933 32,435 45,095 79,458 5,251 209,255 Other borrowings........................ 54,458 70,501 3,000 31,000 32,000 0 190,959 -------- -------- -------- --------- -------- -------- -------- Total deposits and other borrowings........................ 117,433 109,669 53,422 105,386 215,979 130,851 732,740 -------- -------- -------- --------- -------- -------- Other liabilities and shareholders' equity.............................. 60,412 -------- Total Liabilities and Shareholders' Equity.............. $793,152 ======== RATE SENSITIVITY GAP AND RATIOS Gap for period........................ $ (1,393) $(57,663) $ 4,359 $(17,461) $ 59,699 $ 15,085 ======== ======== ======== ========= ======== ======== Cumulative gap........................ $ (1,393) $(59,056) $(54,697) $(72,158) $(12,459) $ 2,626 ======== ======== ======== ========= ======== ======== Ratio of rate-sensitive assets to rate-sensitive liabilities for period.............................. 98.8% 47.4% 108.2% 83.4% 127.6% 111.5% Cumulative ratio of rate-sensitive assets to rate-sensitive liabilities......................... 98.8 74.0 80.5 81.3 97.9 100.4
STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS The Company adopted SFAS #122 effective January 1, 1996. SFAS #122 requires the Banks to recognize as separate assets the rights to service mortgage loans for others that have been acquired through either a purchase or origination of a loan. The fair value of capitalized originated mortgage servicing rights has been determined based on market value quotes for similar servicing. These mortgage servicing rights are amortized in proportion to and over the period of estimated net loan servicing income. SFAS #122 also requires the Banks to assess these mortgage servicing rights for impairment based on the fair value of those rights. For purposes of measuring impairment, the risk characteristics used by the Banks include the underlying loans' interest rates, term of loan and loan types. The Banks capitalized approximately $258,000 of originated servicing rights during the nine months ended September 30, 1996, of which approximately $34,000 has been amortized. The Company also adopted Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS #123"), effective January 1, 1996. SFAS #123 encourages companies to adopt a fair value method of accounting for stock compensation plans. Those companies not adopting a fair value method are required to make pro-forma disclosures of net income and earnings per share, on an annual basis, as if they had adopted the fair value accounting method. Management has elected the pro-forma disclosure method and will do so on an annual basis. 33 36 BUSINESS This section contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results could differ materially from those projected in such forward-looking statements as a result of, among other things, the factors set forth in the section entitled "Risk Factors." GENERAL The Company is a bank holding company with four wholly owned subsidiary banks engaged in the business of retail and commercial banking in portions of Michigan's lower peninsula. IBC Capital, a wholly owned subsidiary of the Company, exists for the purpose of issuing the Preferred Securities and has no independent operations. Headquartered in Ionia, Michigan, the Company was formed in 1973 as the parent company of Independent Bank. Each of the Banks is a state chartered Michigan banking corporation, the business of each of which is described in more detail below. Collectively, the Banks serve over 45 communities through their four main offices and a total of 45 branches and five loan production offices. Management attributes the Company's success to its consistent application of community banking practices in predominantly rural and suburban markets. The Company's decentralized management structure, which empowers and encourages local decision making, represents the core of the Company's community banking philosophy. This autonomy allows local bank management to better anticipate and respond to customer demands and thereby enhances and improves customer service and convenience, the principal means by which the Banks compete in the delivery of financial services. The Company's principal sources of revenue, on a consolidated basis, are interest and fees on loans, other interest income and non-interest income. The sources of income for the three most recent years, and each of the nine-month periods ended September 30, 1995 and 1996 are as follows:
NINE MONTHS ENDED YEARS ENDED DECEMBER SEPTEMBER 30, 31, -------------- ----------------------- 1996 1995 1995 1994 1993 ----- ----- ----- ----- ----- Interest and fees on loans............................... 76.4% 75.6% 76.1% 71.1% 68.3% Other interest income.................................... 15.1 17.0 16.3 21.3 21.5 Non-interest income...................................... 8.5 7.4 7.6 7.6 10.2 ----- ----- ----- ----- ----- 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
RECENT GROWTH Much of the Company's recent growth has resulted from acquisitions. Since 1993, the Company has acquired four Michigan banks, two branch facilities and established five real estate mortgage loan production offices. As a result, the Company's assets have grown to approximately $793.2 million at September 30, 1996, from $403.1 million at December 31, 1992. In October 1993, the Company acquired American Home Bank ("American") and Pioneer Bank ("Pioneer"), with assets of approximately $32 million and $35 million, respectively. The purchase price of $2.5 million for American approximated its then book value, while the purchase price of $4.5 million for Pioneer represented a premium of approximately 15% to Pioneer's book value. In March 1994, the Company increased its assets by approximately $37.2 million by acquiring KSB and its wholly owned subsidiary The Kingston State Bank ("Kingston"). In connection with this acquisition, the Company issued shares of its Common Stock with a market value of approximately $4.4 million, representing a premium of roughly 55% to KSB's book value. American, Pioneer and Kingston have been consolidated to form IBEM. Effective May 31, 1996, the Company acquired NBC, with assets of approximately $152.0 million, for cash in the amount of $15.8 million. This represented a premium of approximately 66% to NBC's book value. North Bank, NBC's wholly-owned subsidiary bank, was consolidated with Independent Bank on August 12, 1996. 34 37 THE COMPANY'S APPROACH TO COMMUNITY BANKING The Company's operating philosophy preserves those elements of traditional community banking which management believes create a competitive advantage in the markets in which it operates. Among these are a high level of personal service and customer recognition, prompt response to customer needs, convenience, continuity of personnel and management, and commitment to and participation in the community. Management attributes the Company's success in preserving its community banking practices in the face of its recent growth to three primary characteristics; (1) decentralized bank management, (2) corporate-wide administrative and technical support, and (3) experienced Company and Bank management. DECENTRALIZED MANAGEMENT. The Company believes that vesting management and the boards of the Banks with the authority to make local decisions allows the Banks to better anticipate customer needs, respond to customer demands, and identify profitable opportunities within their respective markets. To provide the flexibility to effectively pursue these opportunities, the Company's decentralized management structure vests pricing and credit decisions in the management of the respective Banks. While management of each of the Banks is granted the authority to make decisions for its local operations, it is also held accountable for its performance. CORPORATE ADMINISTRATIVE AND SUPPORT SERVICES. To complement the decentralized management structure of the Company and establish consistent service and quality and attain operating efficiencies, the Company's corporate service departments provide a variety of services to each of the Banks. These services include data processing, accounting and audit services, purchasing and risk management, commercial loan credit analysis, servicing and review, consumer loan servicing, real estate mortgage loan underwriting, servicing and secondary market operations, asset/liability management and marketing services. The Company believes that this partnership between the Banks' management and Company personnel allows the management of each of the Banks to focus on sales and marketing and at the same time provides the Company with the internal controls that are consistent with the needs of a decentralized organization. Further, this combination of decentralized management and centralized services provides economies of scale that permit the Company to attract and retain talented managers that possess specific expertise in areas that the Banks could not achieve on an individual basis. MANAGEMENT EXPERIENCE AND COMPENSATION. The Company's growth and profitability is also attributable to management's experience in providing community banking services. The Banks' four presidents, along with the Company's two executive officers, have been employed by the Company, on average, for over 10 years. Set forth below is a list of the Company's executive officers and Bank presidents, their respective ages and financial industry experience.
YEARS OF FINANCIAL NAME (AGE) POSITION WITH COMPANY INDUSTRY EXPERIENCE - --------------------------------- ------------------------------------------ ------------------- Charles C. Van Loan (48)......... President, Chief Executive Officer and Director 19 William R. Kohls (39)............ Executive Vice President and Chief Financial Officer 17 Jeffrey A. Bratsburg (53)........ President and Chief Executive Officer -- Independent Bank West Michigan 25 Edward B. Swanson (43)........... President and Chief Executive Officer -- Independent Bank South Michigan 21 Michael M. Magee, Jr. (40)....... President and Chief Executive Officer -- Independent Bank 21 Ronald L. Long (37).............. President and Chief Executive Officer -- Independent Bank East Michigan 15
The Company's growth has allowed it to recruit and retain experienced individuals, and the recent acquisitions have added experienced community bankers to its franchise. The Company's compensation policies and practices are central to the maintenance of its decentralized management structure, and are intended to promote and support local Bank autonomy while at the same time enhancing overall Company performance. As an example, individual bonuses are currently based on the performance of the Bank the employee works for, as well as the overall performance of the Company. The Company believes that this 35 38 combination promotes individual bank performance and at the same time helps to ensure that results are to the ultimate benefit of the Company's shareholders. In addition to cash incentive plans, the Company maintains a variety of equity-based plans to provide incentives for superior performance and to align the interests of its executive officers and managers with those of the Company's shareholders. Such "pay for performance" compensation plans include annual cash performance awards, the Employee Stock Ownership Plan, the Employee Stock Option Plan and the Incentive Share Grant Plan. As a result of these policies and practices, every full-time employee, subject to certain employment conditions, has an equity interest in the Company. Collectively, the Company's directors and executive officers and Bank presidents own approximately 12.7% of the Company's Common Stock, and as such have a vested interest in the Company's future success and growth. BUSINESS STRATEGY The Company intends to supplement its internal growth with selective acquisitions, while at the same time managing its capital resources. One of the principal challenges confronting the Company, in light of its recent growth, is the preservation of its decentralized management structure, which represents the core of its community banking foundation. INTERNAL GROWTH. Management believes that the stable and diversified economies of the suburban and rural communities served by the Banks' offices, as well as nearby communities and metropolitan areas, provide attractive markets for the Company's traditional commercial banking services. Although the financial services industry continues to be highly competitive, in view of the limited competition within many of the Banks' principal markets, the Company's community banking philosophy emphasizes a high level of service and convenience as the principal means of competition. The markets served by the Banks provide attractive opportunities for maintaining favorable net interest margins; however, the predominantly rural and suburban nature of these markets presents certain challenges to the Company's ability to grow. In the face of this challenge, the Banks have utilized various strategies, based upon the particular attributes of their respective markets, to provide asset growth and profitably deploy capital. In the absence of meaningful deposit growth within those markets, the Banks have increasingly relied on advances from the FHLB to fund the increase in assets. The Company intends to encourage the Banks to continue to operate autonomously to provide the flexibility that may be necessary to take advantage of opportunities in their respective markets. The Company's corporate service departments develop various expertise to assist the Banks and Bank management. In addition, the Banks share certain expertise and experiences with one another. This sharing of expertise and general coordination among the Company and the Banks is accomplished through a network of holding company committees. The Company intends to continue to promote the development of expertise and coordination among the Banks in order to foster the Banks' growth in their respective markets. ACQUISITION STRATEGY. The Company will continue to consider opportunities for expansion through selective acquisitions in markets where management believes its community banking approach creates a competitive advantage. In order to capitalize upon its existing banking network, the Company will continue to focus primarily on acquisitions in contiguous markets; however, the Company may consider expansion into noncontiguous markets in instances where management believes that opportunities exist to enhance shareholder value and allow for effective application of its community banking practices. Management believes that, given its relative size, the Company can sustain meaningful growth through acquisitions in markets that are attractive to the Company but may not be of sufficient size to interest its larger competitors. CAPITAL MANAGEMENT. The Company intends to continue to focus on managing its capital to provide an attractive return on its shareholders' investment. The Company's dividend policies and share repurchase plan have been integral components of management's efforts to maintain profitable financial leverage within management's established risk parameters. Cash dividends declared were equal to 36.5% of earnings for the first nine months of 1996, and were 36.8% and 34.6% of earnings in 1995 and 1994, respectively. Since January 1, 1994, the Company repurchased approximately 75,900 shares of its Common Stock. The Company may rely upon these capital management practices, in the absence of profitable growth opportunities, as part of its goal of achieving an attractive return on its shareholders' investment. 36 39 THE BANKS The following table depicts the Company's and the Banks' loan portfolios as of September 30, 1996:
CONSOLIDATED % OF TOTAL ---------------------- ---------------------------- AMOUNT % OF TOTAL IB IBWM IBSM IBEM -------- ---------- ---- ---- ---- ---- (DOLLARS IN THOUSANDS) Real Estate Residential first mortgages................. $263,224 46.6% 15.7% 15.7% 9.0% 6.2% Residential home equity mortgages........... 31,528 5.6 1.7 2.6 1.0 0.3 Construction and land development........... 46,350 8.2 2.4 3.2 2.0 0.6 Other....................................... 84,428 14.9 6.3 3.4 2.8 2.4 Consumer...................................... 92,137 16.3 9.5 3.0 1.4 2.4 Commercial.................................... 31,534 5.6 3.7 1.3 0.5 0.1 Agricultural.................................. 16,217 2.8 0.2 0.1 0.2 2.3 -------- ----- ---- ---- ---- ---- Total loans.............................. $565,418 100.0% 39.5% 29.3% 16.9% 14.3% ======== ===== ==== ==== ==== ====
The Banks' activities cover traditional phases of retail and commercial banking, including checking and savings accounts, commercial and agricultural lending, direct and indirect consumer financing, mortgage lending and deposit box services. The Banks do not offer trust services. Most of the Banks' offices provide full service lobby and drive-in services in the communities which they serve. Automated teller machines are also provided at most locations. Principally located in rural and suburban communities, the Banks face limited competition within certain of their primary markets. In general, however, the financial services industry is highly competitive. Banks and bank holding companies compete not only with each other, but with savings and loan associations, money market mutual funds, credit unions, securities dealers, providers of insurance and annuity fund products and investment bankers. The market share information appearing below is derived from the June 30, 1995 deposit balances made available by the federal banking regulatory agencies. As of September 30, 1996, the Company and the Banks had 407 full-time employees and 169 part-time employees. INDEPENDENT BANK Independent Bank ("IB"), founded in 1864, operates in two geographically distinct regions. Its south region consists of most of Ionia County and adjacent townships in Montcalm County. Ionia County, with a population of nearly 60,000, is located between the Grand Rapids and Lansing metropolitan areas. Within this region, IB is the only depository institution in several communities. IB's market share, in communities where its branches are located, exceeds 30% of total deposits. IB's north region is comprised of the former branches of North Bank, acquired as a result of the NBC Acquisition. IB defines its markets in this region of northeastern Michigan as the counties of Iosco, Alpena and Presque Isle, along with portions of Ogemaw, Alcona and Montmorency counties. IB's northeastern branches are located in Hale, Tawas City, Rogers City, Rose City, Whittemore, Glennie, Hillman and Hubbard Lake, as well as the larger communities of Alpena and Oscoda. Within seven of the ten communities served by its branches in this region, IB's market share of deposits exceeds 50%, and it is the only bank with an office located within four of these communities. While the regions are geographically distinct, the rural communities served by IB's branches are demographically similar and rely on an economic base that includes manufacturers, service and retail businesses, agriculture, mining, forest products and government. Notwithstanding these similarities, Ionia County's population and IB's business benefit from the region's proximity to Grand Rapids and Lansing as well as the six facilities of the Michigan Department of Corrections that are located in Ionia and Carson City. IB's northeastern region benefits from a substantial retirement population as well as vacationers. 37 40 INDEPENDENT BANK WEST MICHIGAN The main office of Independent Bank West Michigan ("IBWM") is located in Rockford, a northern suburb of Grand Rapids. IBWM's branches serve the communities of Howard City, Sand Lake, Cedar Springs, White Cloud, Newaygo, Sparta and Croton Hardy located in northern Kent County, western Montcalm County and southern Newaygo County. IBWM is the only financial institution with an office in two of these communities; within three other markets IBWM's market share exceeds 55% of total deposits. Additionally, IBWM has established loan production offices with 21 commissioned real estate mortgage loan originators that serve Muskegon, Mecosta and Ottawa counties. IBWM's principal markets contain two distinct demographic groups. As a suburb of Grand Rapids, Rockford is a fast growing, affluent residential community while most of the remaining markets are rural. Reflecting the profile of its markets, IBWM has emphasized consumer banking and, given the rapid growth of western Michigan, real estate mortgage lending. As a result of IBWM's success in real estate mortgage lending, the Company has experience in secondary marketing and servicing that promotes the success of the other Banks. INDEPENDENT BANK SOUTH MICHIGAN Independent Bank South Michigan ("IBSM") has its headquarters in Leslie, located between Lansing and Jackson. IBSM's branches are located in Ingham and Eaton counties and the northern portion of Jackson County. Within the communities of Rives Junction, Pleasant Lake, Potterville, Vermontville and Leslie, IBSM is the only depository institution. Within seven of the nine communities served by IBSM's branches, its market share exceeds 60% of total deposits. Principal employers within this market include General Motors Corporation, the State of Michigan and Michigan State University. Although historically characterized as an agricultural bank, IBSM has increased its focus on consumer and real estate mortgage lending and, to a lesser degree, the non-agricultural commercial lending opportunities within its markets. Its Okemos-based loan production office serves the greater Lansing area and further leverages the Company's expertise in real estate mortgage lending. INDEPENDENT BANK EAST MICHIGAN The main office of IBEM is located in Caro, centrally located in Tuscola County in the heart of eastern Michigan's thumb region. In addition to the communities of Unionville, Kingston, Snover and Reese within Tuscola County, IBEM's branches serve Clifford, North Branch, Clio and Marlette located in northern Lapeer, Sanilac and Genesse counties. Within four of these communities, IBEM is the only depository institution. Notwithstanding the agricultural-based economy of the thumb region, IBEM's markets benefit from their proximity to the Detroit metropolitan areas. The pending acquisition of the FOA Branches, located in the communities of Bad Axe, Sebewaing, Caseville, Elkton, Kinde, Ubly and Gagetown would add approximately $121.5 million of deposits, based on September 30, 1996 information. As a result, IBEM will become the largest depository institution in Huron County with a market share of approximately 25% of total deposits. LEGAL PROCEEDINGS The Company and the Banks are parties to various claims, complaints and other legal actions that have arisen in the ordinary course of business from time to time. Management believes that the outcome of all pending legal proceedings, in the aggregate, will not have a material adverse effect on the Company's or the Banks' business, results of operations or financial condition. 38 41 SUPERVISION AND REGULATION The following is a summary of certain statutes and regulations affecting the Company and the Banks. This summary is qualified in its entirety by reference to the particular statutes and regulations. A change in applicable laws or regulations may have a material effect on the Company, the Banks and the businesses of the Company and the Banks. See "Risk Factors." GENERAL Financial institutions and their holding companies are extensively regulated under federal and state law. Consequently, the growth and earnings performance of the Company and the Banks can be affected not only by management decisions and general and local economic conditions, but also by the statutes administered by, and the regulations and policies of, various governmental regulatory authorities. Those authorities include, but are not limited to the Federal Reserve, the FDIC, the Commissioner of the Michigan Financial Institutions Bureau ("Commissioner"), the Internal Revenue Service, and state taxing authorities. The effect of such statutes, regulations and policies and any changes thereto can be significant and cannot be predicted. Federal and state laws and regulations generally applicable to financial institutions and their holding companies regulate, among other things, the scope of business, investments, reserves against deposits, capital levels relative to operations, lending activities and practices, the nature and amount of collateral for loans, the establishment of branches, mergers, consolidations and dividends. The system of supervision and regulation applicable to the Company and the Banks establishes a comprehensive framework for their respective operations and is intended primarily for the protection of the FDIC's deposit insurance funds, the depositors of the Banks, and the public, rather than shareholders of the Company. Federal law and regulations, including provisions added by the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and regulations promulgated thereunder, establish supervisory standards applicable to the lending activities of the Banks, including internal controls, credit underwriting, loan documentation, and loan-to-value ratios for loans secured by real property. THE COMPANY GENERAL. The Company is a bank holding company and, as such, is registered with, and subject to regulation by, the Federal Reserve under the Bank Holding Company Act, as amended (the "BHCA"). Under the BHCA, the Company is subject to periodic examination by the Federal Reserve, and is required to file periodic reports of its operations and such additional information as the Federal Reserve may require. In accordance with Federal Reserve policy, the Company is expected to act as a source of financial strength to the Banks and to commit resources to support the Banks in circumstances where the Company might not do so absent such policy. In addition, in certain circumstances a Michigan state bank having impaired capital may be required by the Commissioner either to restore the bank's capital by a special assessment upon its shareholders, or to initiate the liquidation of the bank. Any capital loans by a bank holding company to a subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank. In the event of a bank holding company's bankruptcy, any commitment by the bank holding company to a federal bank regulatory agency to maintain the capital of a subsidiary bank will be assumed by the bankruptcy trustee and entitled to a priority of payment. INVESTMENTS AND ACTIVITIES. Under the BHCA, bank holding companies are prohibited, with certain limited exceptions, from engaging in activities other than those of banking or of managing or controlling banks and from acquiring or retaining direct or indirect ownership or control of voting shares or assets of any company which is not a bank or bank holding company, other than subsidiary companies furnishing services to or performing services for its subsidiaries, and other subsidiaries engaged in activities which, by the Federal Reserve's determination, are closely related to banking or managing or controlling banks. Since September 29, 1995, the BHCA has permitted the Federal Reserve under specified circumstances to approve the acquisition 39 42 by a bank holding company located in one state, of a bank or bank holding company located in another state, without regard to any prohibition contained in state law. See "Recent Regulatory Developments." In general, any direct or indirect acquisition by the Company of any voting shares of any bank which would result in the Company's direct or indirect ownership or control of more than 5% of any class of voting shares of such bank, and any merger or consolidation of the Company with another bank holding company, will require the prior written approval of the Federal Reserve under the BHCA. In acting on such applications, the Federal Reserve must consider various statutory factors, including among others, the effect of the proposed transaction on competition in relevant geographic and product markets, and each party's financial condition, managerial resources, and record of performance under the Community Reinvestment Act. In addition and subject to certain exceptions, the Change in the Bank Control Act ("Control Act") and regulations promulgated thereunder by the Federal Reserve, require any person acting directly or indirectly, or through or in concert with one or more persons, to give the Federal Reserve 60 days' written notice before acquiring control of a bank holding company. Transactions which are presumed to constitute the acquisition of control include the acquisition of any voting securities of a bank holding company having securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, if, after the transaction, the acquiring person (or persons acting in concert) owns, controls or holds with power to vote 25% or more of any class of voting securities of the institution. The acquisition may not be consummated subsequent to such notice if the Federal Reserve issues a notice within 60 days, or within certain extensions of such period, disapproving the same. The merger or consolidation of an existing bank subsidiary of the Company with another bank, or the acquisition by such a subsidiary of the assets of another bank, or the assumption of the deposit and other liabilities by such a subsidiary requires the prior written approval of the responsible Federal depository institution regulatory agency under the Bank Merger Act, based upon a consideration of statutory factors similar to those outlined above with respect to the BHCA. In addition, in certain such cases an application to, and the prior approval of, the Federal Reserve under the BHCA and/or the Commissioner under Michigan banking laws, may be required. With certain limited exceptions, the BHCA prohibits bank holding companies from acquiring direct or indirect ownership or control of voting shares or assets of any company other than a bank, unless the company involved is engaged solely in one or more activities which the Federal Reserve has determined to be closely related to banking or managing or controlling banks. In making this determination, the Federal Reserve considers various factors, including among others the financial and managerial resources of the notifying bank holding company, and the relative public benefits and adverse effects which may be expected to result from the performance of the activity by an affiliate of such company. The Federal Reserve may apply different standards to activities proposed to be commenced de novo and activities commenced by acquisition, in whole or in part, of a going concern. The recent enactment of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 ("EGRPRA") streamlines the nonbanking activities application process for well capitalized and well managed bank holding companies. See "Recent Regulatory Developments." Under EGRPRA, qualified bank holding companies may commence a regulatory approved nonbanking activity without prior notice to the Federal Reserve; written notice is merely required within ten days after commencing the activity. Also, under EGRPRA, the prior notice period is reduced to 12 days in the event of any nonbanking 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% in Tier 1 capital. This prior notice requirement also applies to commencing a nonbanking activity de novo which has been previously approved by order of the Federal Reserve, but not yet implemented by regulations. CAPITAL REQUIREMENTS. The Federal Reserve uses capital adequacy guidelines in its examination and regulation of bank holding companies. If capital falls below minimum guidelines, a bank holding company may, among other things, be denied approval to acquire or establish additional banks or non-bank businesses. 40 43 The Federal Reserve's capital guidelines establish the following minimum regulatory capital requirements for bank holding companies: (i) a capital leverage requirement expressed as a percentage of total assets, (ii) a risk-based requirement expressed as a percentage of total risk-weighted assets, and (iii) a Tier 1 leverage requirement expressed as a percentage of total assets. The capital leverage requirement consists of a minimum ratio of total capital to total assets of 6%, with an expressed expectation that banking organizations generally should operate above such minimum level. The risk-based requirement consists of a minimum ratio of total capital to total risk-weighted assets of 8%, of which at least one-half must be Tier 1 capital (which consists principally of shareholders' equity). The Tier 1 leverage requirement consists of a minimum ratio of Tier 1 capital to total assets, less goodwill ("Tier 1 capital leverage ratio") of 3% for the most highly rated companies, with minimum requirements of 4% to 5% for all others. The risk-based and leverage standards presently used by the Federal Reserve are minimum requirements, and higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual banking organizations. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 capital less all intangible assets), well above the minimum levels. The Federal Reserve has not advised the Company of any specific minimum Tier 1 capital leverage ratio applicable to it. FDICIA requires the federal bank regulatory agencies biennially to review risk-based capital standards to ensure that they adequately address interest rate risk, concentration of credit risk and risks from non-traditional activities and, since adoption of the Riegle Community Development and Regulatory Improvement Act of 1994 (the "Riegle Act"), to do so taking into account the size and activities of depository institutions and the avoidance of undue reporting burdens. See "Recent Regulatory Developments." In 1995, the federal bank regulatory agencies adopted regulations requiring as part of the assessment of an institution's capital adequacy the consideration of: (i) identified concentrations of credit risks, (ii) the exposure of the institution to a decline in the value of its capital due to changes in interest rates, and (iii) the application of revised conversion factors and netting rules on the institution's potential future exposure from derivative transactions. DIVIDENDS. The Company is a corporation separate and distinct from the Banks. Most of the Company's revenues are received by it in the form of dividends paid by the Banks. The Banks are subject to statutory restrictions on their ability to pay dividends to the Company. See "The Banks -- Dividends." The Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies. In the policy statement, the Federal Reserve expressed its view that a bank holding company experiencing earnings weaknesses should not pay cash dividends exceeding its net income or which could only be funded in ways that weakened the bank holding company's financial health, such as by borrowing. Additionally, the Federal Reserve possesses enforcement powers over bank holding companies and their non-bank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies. Similar enforcement powers over the Banks are possessed by the FDIC. The "prompt corrective action" provisions of FDICIA impose further restrictions on the payment of dividends by insured banks which fail to meet specified capital levels and, in some cases, impose similar restrictions on their parent bank holding companies. In addition to the restrictions on dividends imposed by the Federal Reserve, the Michigan Business Corporation Act provides that dividends may be legally declared or paid only if after the distribution a corporation, such as the Company, can pay its debts as they come due in the usual course of business and its total assets equal or exceed the sum of its liabilities plus the amount that would be needed to satisfy the preferential rights upon dissolution of any holders of preferred stock whose preferential rights are superior to those receiving the distribution. THE BANKS GENERAL. The Banks are Michigan banking corporations and their deposit accounts are principally insured by the BIF of the FDIC. As BIF-insured Michigan chartered banks, the Banks are subject to the examination, supervision, reporting and enforcement requirements of the Commissioner, as the chartering authority for 41 44 Michigan banks, and the FDIC, as administrator of the BIF. These agencies and federal and state law extensively regulate various aspects of the banking business including, among other things, permissible types and amounts of loans, investments and other activities, capital adequacy, branching, interest rates on loans and on deposits, the maintenance of noninterest-bearing reserves on deposit accounts, and the safety and soundness of banking practices. DEPOSIT INSURANCE. As FDIC-insured institutions, the Banks are required to pay deposit insurance premium assessments to the FDIC. Pursuant to FDICIA, the FDIC adopted a risk-based assessment system under which all insured depository institutions are placed into one of nine categories and assessed insurance premiums, based upon their level of capital and supervisory evaluation. Institutions classified as well-capitalized (as defined by the FDIC) and considered healthy pay the lowest premium while institutions that are less than adequately capitalized (as defined by the FDIC) and considered of substantial supervisory concern pay the highest premium. Risk classification of all insured institutions is made by the FDIC for each semi-annual assessment period. FDICIA required the FDIC to establish assessment rates at levels which would restore the BIF to a mandated reserve ratio of 1.25% of insured deposits over a period not to exceed 15 years. In 1995, the FDIC determined that the BIF had reached the required ratio. Accordingly, the FDIC has established the schedule of BIF insurance assessments for the first semi-annual assessment period of 1996, ranging from 0% of deposits for institutions in the highest category to .27% of deposits for institutions in the lowest category. For the first nine months of 1996, the Banks paid $32,000 in BIF insurance assessments. At September 30, 1996, the Banks held less than $11 million of SAIF-insured deposits, and paid an average rate premium of .23% on such deposits during the first nine months of 1996. The deposit liabilities to be assumed in connection with the acquisition of the FOA Branches are all insured by SAIF. Effective September 30, 1996, the FDIC was authorized to impose a special assessment on certain SAIF-assessable deposits. Because IBEM held no SAIF-assessable deposits as of March 31, 1995, IBEM will be exempt from the special assessment. The FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines, after a hearing, that the institution or its directors have engaged or are engaging in unsafe or unsound practices, or have violated any applicable law, regulation, order, or any condition imposed in writing by, or written agreement with, the FDIC, or if the institution is in an unsafe or unsound condition to continue operations. The FDIC may also suspend deposit insurance temporarily during the hearing process for a permanent termination of insurance if the institution has no tangible capital. CAPITAL REQUIREMENTS. Consistent with the Federal Reserve's guidelines for bank holding companies, the FDIC has established the following minimum capital standards for state-chartered, FDIC-insured non-member banks, such as the Banks: a leverage requirement consisting of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated banks with minimum requirements of 4% to 5% for all others and a risk-based capital requirement consisting of a minimum ratio of total capital to total risk-weighted assets of 8%, at least one-half of which must be Tier 1 capital (which consists principally of shareholders' equity). These capital requirements are minimum requirements. Higher capital levels will be required if warranted by the particular circumstances or risk profiles of individual institutions. 42 45 FDICIA establishes five capital categories, and the federal depository institution regulators, as directed by FDICIA, have adopted, subject to certain exceptions, the following minimum requirements for each of such categories:
TOTAL TIER 1 RISK-BASED RISK-BASED CAPITAL RATIO CAPITAL RATIO LEVERAGE RATIO -------------- -------------- ----------------------- Well capitalized............................ 10% or above 6% or above 5% or above Adequately capitalized...................... 8% or above 4% or above 4% or above Undercapitalized............................ Less than 8% Less than 4% Less than 4% Significantly undercapitalized.............. Less than 6% Less than 3% Less than 3% Critically undercapitalized................. -- -- A ratio of tangible equity to total assets of 2% or less
At September 30, 1996, each of the Banks' ratios exceeded minimum requirements for the well-capitalized category. Among other things, FDICIA requires the federal depository institution regulators to take prompt corrective action in respect of depository institutions that do not meet minimum capital requirements. The scope and degree of regulatory intervention is linked to the capital category to which a depository institution is assigned. Depending upon the capital category to which an institution is assigned, the regulators' corrective powers include: requiring the submission of a capital restoration plan; placing limits on asset growth and restrictions on activities; requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; restricting transactions with affiliates; restricting the interest rate the institution may pay on deposits; ordering a new election of directors of the institution; requiring that senior executive officers or directors be dismissed; prohibiting the institution from accepting deposits from correspondent banks; requiring the institution to divest certain subsidiaries; prohibiting the payment of principal or interest on subordinated debt; and ultimately, appointing a receiver for the institution. In general, a depository institution may be reclassified to a lower category than is indicated by its capital position if the appropriate federal depository institution regulatory agency determines the institution to be otherwise in an unsafe or unsound condition or to be engaged in an unsafe or unsound practice. Such a practice could include a failure by the institution, following receipt of a less-than-satisfactory rating on its most recent examination report, to correct the deficiency. DIVIDENDS. Under Michigan law, the Banks are restricted as to the maximum amount of dividends they may pay on their common stock. A Michigan state bank may not declare or pay a dividend unless the bank will have a surplus amounting to at least 20% of its capital after the payment of the dividend. A Michigan state bank may, with the approval of the Commissioner, by vote of shareholders owning 2/3 of the stock eligible to vote, increase its capital stock by a declaration of a stock dividend, provided that after the increase the bank's surplus equals at least 20% of its capital stock, as increased. The Banks may not declare or pay any dividend until the cumulative dividends on preferred stock (should any such stock be issued and outstanding) have been paid in full. The Banks have no present plans to issue preferred stock other than the Preferred Stock. FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized. The FDIC may also prevent an insured bank from paying dividends if the bank is in default of payment of any assessment due to the FDIC. In addition, payment of dividends by a bank may be prevented by the applicable federal regulatory authority if such payment is determined, by reason of the financial condition of such bank, to be an unsafe and unsound banking practice. The Federal Reserve Board has issued a policy statement providing that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. 43 46 INSIDER TRANSACTIONS. The Banks are subject to certain restrictions imposed by the Federal Reserve Act on "covered transactions" with the Company or its subsidiaries. The "covered transactions" that an insured bank and its subsidiaries are permitted to engage in with their nonbank affiliates are limited to the following amounts: (i) in the case of any one such affiliate, the aggregate amount of "covered transactions" of the insured bank and its subsidiaries cannot exceed 10% of the capital stock and surplus of the insured bank; and (ii) in the case of all affiliates, the aggregate amount of all "covered transactions" of the insured bank and its subsidiaries cannot exceed 20% of the capital stock and surplus of the insured bank. "Covered transactions" are defined by statute to include a loan or extension of credit to the affiliate, a purchase of securities issued by an affiliate, a purchase of assets from the affiliate (unless otherwise exempted by the Federal Reserve), the acceptance of securities issued by the affiliate as collateral for a loan, and the issuance of a guaranty, acceptance, or letter of credit for the benefit of an affiliate. Covered transactions must also be collateralized. The Federal Reserve Act further requires that (i) "covered transactions" with affiliates; (ii) asset sales to affiliates; (iii) contractual arrangements with affiliates; (iv) transactions in which an affiliate acts as an agent or broker; and (v) any transaction in which an affiliate has a financial interest or is a participant, must be made: (x) on terms and under circumstances, including credit standards, that are substantially the same as those prevailing at the time for comparable transactions with or involving other nonaffiliated companies; or (y) in the absence of comparable transactions, on terms and under circumstances, including credit standards, that in good faith would be offered to, or would apply to, nonaffiliated companies. Certain limitations and reporting requirements are also placed on extensions of credit by the Banks to their directors and officers, to directors and officers of the Company and its subsidiaries, to principal shareholders of the Company, and to "related interests" of such directors, officers and principal shareholders. In addition, such legislation and regulations may affect the terms upon which any person becoming a director or officer of the Company or one of its subsidiaries or a principal shareholder of the Company may obtain credit from banks with which any of the Banks maintains a correspondent relationship. SAFETY AND SOUNDNESS STANDARDS. On July 10, 1995, the FDIC, the Office of Thrift Supervision, the Federal Reserve and the Office of the Comptroller of the Currency published final guidelines implementing the FDICIA requirement that the federal banking agencies establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions. The guidelines, which took effect on August 9, 1995, establish standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees and benefits. In general, the guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals. If an institution fails to comply with any of the standards set forth in the guidelines, the institution's primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. The preamble to the guidelines states that the agencies expect to require a compliance plan from an institution whose failure to meet one or more of the standards is of such severity that it could threaten the safe and sound operation of the institution. Failure to submit an acceptable compliance plan, or failure to adhere to a compliance plan that has been accepted by the appropriate regulator, would constitute grounds for further enforcement action. The federal banking agencies have also published for comment proposed asset quality and earnings standards which, if adopted, would be added to the safety and soundness guidelines. This proposal, like the final guidelines, would make each depository institution responsible for establishing its own procedures to meet such goals. STATE BANK ACTIVITIES. Under FDICIA, as implemented by final regulations adopted by the FDIC, FDIC-insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not permissible for a national bank. FDICIA, as implemented by FDIC regulations, also prohibits FDIC-insured state banks and their subsidiaries, subject to certain exceptions, from engaging as a principal in any activity that is not permitted for a national bank or its subsidiary, respectively, unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines the activity would not pose a significant risk to the deposit insurance fund of which the bank is a member. Impermissible investments and activities must be divested or discontinued within certain time frames set by the FDIC in accordance with FDICIA. 44 47 CONSUMER BANKING. The Banks' business includes making a variety of types of loans to individuals. In making these loans, the Banks are subject to State usury and regulatory laws and to various Federal statutes, such as the Equal Credit Opportunity Act, Fair Credit Reporting Act, Truth in Lending Act, Real Estate Settlement Procedures Act, and Home Mortgage Disclosure Act, and the regulations promulgated thereunder, which (x) prohibit discrimination based on race, color, religion, national origin, sex, marital status, age (except in limited circumstances), receipt of income from public assistance programs, or good faith exercise of any rights under the Consumer Credit Protection Act, (y) specify disclosures to be made to borrowers regarding credit and settlement costs, and (z) regulate the mortgage loan servicing activities of the Bank, including the maintenance and operation of escrow accounts and the transfer of mortgage loan servicing. The Riegle Act imposed new escrow requirements on mortgage lenders and servicers under the National Flood Insurance Program. See "Recent Regulatory Developments." In receiving deposits, the Banks are subject to extensive regulation under state and federal law and regulations, including the Truth in Savings Act, the Expedited Funds Availability Act, the Bank Secrecy Act, the Electronic Funds Transfer Act, and the Federal Deposit Insurance Act. Violation of these laws could result in the imposition of significant damages and fines upon the Banks and their respective directors and officers. RECENT REGULATORY DEVELOPMENTS In 1994, the Congress enacted two major pieces of banking legislation, the Riegle Act and the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act"). The Riegle Act addressed such varied issues as the promotion of economic revitalization of defined urban and rural "qualified distressed communities" through special purpose "Community Development Financial Institutions," the expansion of consumer protection with respect to certain loans secured by a consumer's home and reverse mortgages, and reductions in compliance burdens regarding Currency Transaction Reports, reform of the National Flood Insurance Program, the promotion of a secondary market for small business loans and leases, and mandating specific changes to reduce regulatory impositions on depository institutions and holding companies. The Riegle-Neal Act substantially changed the geographic constraints applicable to the banking industry. Effective September 29, 1995, the Riegle-Neal Act allows bank holding companies to acquire banks located in any state in the United States without regard to geographic restrictions or reciprocity requirements imposed by state law, but subject to certain conditions, including limitations on the aggregate amount of deposits that may be held by the acquiring holding company and all of its insured depository institution affiliates. Effective June 1, 1997 (or earlier if expressly authorized by applicable state law), the Riegle-Neal Act allows banks to establish interstate branch networks through acquisitions of other banks, subject to certain conditions that include limitations on the aggregate amount of deposits that may be held by the surviving bank and all of its insured depository institution affiliates. The establishment of de novo interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) is allowed by the Riegle-Neal Act only if specifically authorized by state law. The legislation allows individual states to "opt-out" of certain provisions of the Riegle-Neal Act by enacting appropriate legislation prior to June 1, 1997. In November, 1995, Michigan exercised its right to opt-in early to the Riegle-Neal Act, and permitted non-U.S. banks to establish branch offices in Michigan. Effective November 29, 1995, the Michigan Banking Code was amended to permit, in appropriate circumstances and with the approval of the Commissioner, (i) the acquisition of Michigan-chartered banks by FDIC-insured banks, savings banks, or savings and loan associations located in other states, (ii) the sale by a Michigan-chartered bank of one or more of its branches (not comprising all or substantially all of its assets) to an FDIC insured bank, savings bank or savings and loan association located in a state in which a Michigan-chartered bank could purchase one or more branches of the purchasing entity, (iii) the acquisition by a Michigan-chartered bank of an FDIC-insured bank, savings bank or savings and loan association located in another state, (iv) the acquisition by a Michigan-chartered bank of one or more branches (not comprising all or substantially all of the assets) of an FDIC-insured bank, savings bank or savings and loan association located in another state, (v) the consolidation of one or more Michigan-chartered banks and FDIC-insured banks, savings banks or savings and loan associations located in 45 48 other states having laws permitting such consolidation, with the resulting organization chartered either by Michigan or one of such other states, (vi) the establishment by Michigan-chartered banks of branches located in other states, the District of Columbia, or U.S. territories or protectorates with the consent of the appropriate state or territorial regulatory authority, and (vii) the establishment by foreign banks of branches located in Michigan. The amending legislation also expanded the regulatory authority of the Commissioner and made certain other changes. The Michigan Legislature adopted, effective March 28, 1996, the Credit Reform Act. This statute, together with amendments to other related laws, permits regulated lenders, indirectly including Michigan-chartered banks, to charge and collect higher rates of interest and increased fees on certain types of loans to individuals and businesses. The laws prohibit "excessive fees and charges," and authorize governmental authorities and borrowers to bring actions for injunctive relief and statutory and actual damages for violations by lenders. The statutes specifically authorize class actions, and also civil money penalties for knowing and willful, or persistent violations. FDIC regulations which became effective April 1, 1996, impose limitations (and in certain cases, prohibitions) on (1) certain "golden parachute" severance payments by troubled depository institutions and their affiliated holding companies to institution-affiliated parties (primarily directors, officers, employees, or principal shareholders of the institution), and (ii) certain indemnification payments by a depository institution or its affiliated holding company, regardless of financial condition, to institution-affiliated parties. The FDIC regulations impose limitations on indemnification payments which could restrict, in certain circumstances, payments by the Company or the Banks to their respective directors or officers otherwise permitted under the Michigan Business Corporation Act ("MBCA") or the Michigan Banking Code, respectively. On September 30, 1996, EGRPRA was signed into law, which provides for the recapitalization of SAIF and includes approximately 40 regulatory relief initiatives. Among other matters, this legislation provides for expedited application procedures for nonbanking activities by well capitalized and well managed bank holding companies, provides reforms to the Fair Credit Reporting Act, and provides other forms of regulatory relief to the financial services industry. DESCRIPTION OF PREFERRED SECURITIES The Preferred Securities will be issued pursuant to the terms of the Trust Agreement. The Trust Agreement will be qualified as an indenture under the Trust Indenture Act. Initially, State Street Bank and Trust Company will be the Property Trustee and will act as trustee for the purpose of complying with the Trust Indenture Act. The terms of the Preferred Securities will include those stated in the Trust Agreement and those made part of the Trust Agreement by the Trust Indenture Act. This summary of the material terms and provisions of the Preferred Securities and the Trust Agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Trust Agreement, including the definitions therein of certain terms, and the Trust Indenture Act. Wherever particular defined terms of the Trust Agreement (as amended or supplemented from time to time) are referred to herein, such defined terms are incorporated herein. The form of the Trust Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. GENERAL Pursuant to the terms of the Trust Agreement, the Trustees on behalf of IBC Capital will issue the Preferred Securities and the Common Securities (collectively, the "Trust Securities"). The Preferred Securities will represent preferred beneficial interests in IBC Capital and the holders thereof will be entitled to a preference in certain circumstances with respect to Distributions and amounts payable on redemption or liquidation over the Common Securities of IBC Capital, as well as other benefits as described in the Trust Agreement. The Preferred Securities will rank pari passu, and payments will be made thereon pro rata, with the Common Securities of IBC Capital except as described under "-- Subordination of Common Securities." 46 49 Legal title to the Subordinated Debentures will be held by the Property Trustee in trust for the benefit of the holders of the Preferred Securities and Common Securities. The Guarantee executed by the Company for the benefit of the holders of the Preferred Securities will be a guarantee on a subordinated basis with respect to the Preferred Securities but will not guarantee payment of Distributions or amounts payable on redemption or liquidation of such Preferred Securities when IBC Capital does not have funds on hand available to make such payments. See "Description of Guarantee." DISTRIBUTIONS PAYMENT OF DISTRIBUTIONS. The Preferred Securities represent beneficial interests in IBC Capital, and Distributions on each Preferred Security will be payable at the annual rate of % of the stated Liquidation Amount of $25, payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, to the holders of the Preferred Securities on the relevant record dates (each date on which Distributions are payable in accordance with the foregoing, a "Distribution Date"). The record date will be, for so long as the Preferred Securities remain in book-entry form, one Business Day prior to the relevant Distribution Date and, in the event the Preferred Securities are not in book-entry form, the 15th day of the month in which the relevant Distribution Date occurs. Distributions will accumulate from the date of original issuance. The first Distribution Date for the Preferred Securities will be March 31, 1997. The amount of Distributions payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which Distributions are payable on the Preferred Securities is not a Business Day, then payment of the Distributions payable on such date will be made on the next succeeding day that is a Business Day (and without any additional Distributions, interest or other payment in respect of any such delay), in each case with the same force and effect as if made on the date such payment was originally payable. As used in this Prospectus, a "Business Day" shall mean any day other than a Saturday or a Sunday, or a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed or a day on which the corporate trust office of the Property Trustee or the Debenture Trustee is closed for business. EXTENSION PERIOD. So long as no Event of Default under the Indenture has occurred and is continuing, the Company has the right under the Indenture to defer the payment of interest on the Subordinated Debentures at any time and from time to time for a period not exceeding 20 consecutive quarters with respect to each such period (each, an "Extension Period"), provided that no Extension Period may extend beyond the Stated Maturity of the Subordinated Debentures. As a consequence of any such election, quarterly Distributions on the Preferred Securities will be deferred by IBC Capital during any such Extension Period. Distributions to which holders of the Preferred Securities are entitled will accumulate additional Distributions thereon at the rate per annum of % thereof, compounded quarterly from the relevant Distribution Date. The term "Distributions" as used herein shall include any such additional Distributions. During any such Extension Period, the Company may not, and may not permit any subsidiary of the Company to, (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company's capital stock or (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company that rank pari passu with or junior in interest to the Subordinated Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu with or junior in interest to the Subordinated Debentures (other than (a) dividends or distributions in Common Stock, (b) any declaration of a 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, (c) payments under the Guarantee and (d) purchases of Common Stock under any of the Company's benefit plans for its directors, officers or employees). Prior to the termination of any such Extension Period, the Company may defer the payment of interest, provided that no Extension Period may exceed 20 consecutive quarters, or extend beyond the Stated Maturity of the Subordinated Debentures. Upon the termination of any such Extension Period and the payment of all amounts then due, the Company may elect to begin a new Extension Period. Subject to the foregoing, there is no limitation on the number of times that the Company may elect to begin an Extension Period. 47 50 The Company has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Subordinated Debentures. CUMULATIVE DISTRIBUTIONS. Distributions on the Preferred Securities will accumulate from the date of original issuance and will be payable on the Distribution Dates. In the event that any date on which Distributions are payable on the Preferred Securities is not a Business Day, then payment of the Distribution payable on such date will be made on the next succeeding day that is a Business Day (and without any additional Distributions, interest or other payment in respect to any such delay) with the same force and effect as if made on the date such payment was originally payable. The funds of IBC Capital available for distribution to holders of its Preferred Securities will be limited to payments under the Subordinated Debentures in which IBC Capital will invest the proceeds from the issuance and sale of its Preferred Securities. See "Description of Subordinated Debentures." If the Company does not make interest payments on the Subordinated Debentures, the Property Trustee will not have funds available to pay Distributions on the Preferred Securities. The payment of Distributions (if and to the extent IBC Capital has funds legally available for the payment of such Distributions and cash sufficient to make such payments) is guaranteed by the Company. See "Description of Guarantee." Distributions on the Preferred Securities will be payable to the holders thereof as they appear on the register of IBC Capital on the relevant record dates, which, as long as the Preferred Securities remain in book-entry form, will be one Business Day prior to the relevant Distribution Date. Subject to any applicable laws and regulations and the provisions of the Trust Agreement, each such payment will be made as described under "Book-Entry Issuance." REDEMPTION OR EXCHANGE The Company will have the right to redeem the Subordinated Debentures (i) on or after , 2001, in whole at any time or in part from time to time, or (ii) at any time, in whole (but not in part), upon the occurrence of a Tax Event or an Investment Company Event, in each case subject to receipt of prior approval by the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. MANDATORY REDEMPTION. Upon the repayment or redemption, in whole or in part, of any Subordinated Debentures, whether at Stated Maturity or upon earlier redemption as provided in the Indenture, the proceeds from such repayment or redemption shall be applied by the Property Trustee to redeem a Like Amount (as defined below) of the Trust Securities, upon not less than 30 nor more than 60 days notice, at a redemption price (the "Redemption Price") equal to the aggregate Liquidation Amount of such Trust Securities plus accumulated but unpaid Distributions thereon to the date of redemption (the "Redemption Date"). See "Description of Subordinated Debentures -- Redemption or Exchange." If less than all of the Subordinated Debentures are to be repaid or redeemed on a Redemption Date, then the proceeds from such repayment or redemption shall be allocated to the redemption of the Preferred Securities and the Common Securities pro rata or by lot. DISTRIBUTION OF SUBORDINATED DEBENTURES. Subject to the Company having received prior approval of the Federal Reserve if so required under applicable capital guidelines or policies of the Federal Reserve, the Company will have the right at any time to liquidate IBC Capital and, after satisfaction of the liabilities of creditors of IBC Capital as provided by applicable law, cause the Subordinated Debentures to be distributed to the holders of Preferred Securities and Common Securities in liquidation of IBC Capital. 48 51 TAX EVENT REDEMPTION OR INVESTMENT COMPANY EVENT REDEMPTION. If a Tax Event or an Investment Company Event in respect of the Preferred Securities and Common Securities shall occur and be continuing, the Company has the right to redeem the Subordinated Debentures in whole (but not in part) and thereby cause a mandatory redemption of such Preferred Securities and Common Securities in whole (but not in part) at the Redemption Price within 90 days following the occurrence of such Tax Event or Investment Company Event. In the event a Tax Event or an Investment Company Event in respect of the Preferred Securities and Common Securities has occurred and is continuing and the Company does not elect to redeem the Subordinated Debentures and thereby cause a mandatory redemption of such Preferred Securities and Common Securities or to liquidate IBC Capital and cause the Subordinated Debentures to be distributed to holders of such Preferred Securities and Common Securities in liquidation of IBC Capital as described below, such Preferred Securities will remain outstanding and Additional Sums (as defined below) may be payable on the Subordinated Debentures. "Additional Sums" means the additional amounts as may be necessary in order that the amount of Distributions then due and payable by IBC Capital on the outstanding Preferred Securities and Common Securities of IBC Capital shall not be reduced as a result of any additional taxes, duties and other governmental charges to which IBC Capital has become subject as a result of a Tax Event or an Investment Company Event. "Like Amount" means (i) with respect to a redemption of Trust Securities, Trust Securities having a Liquidation Amount (as defined below) equal to that portion of the principal amount of Subordinated Debentures to be contemporaneously redeemed in accordance with the Indenture, allocated to the Common Securities and to the Preferred Securities based upon the relative Liquidation Amounts of such classes and the proceeds of which will be used to pay the Redemption Price of such Trust Securities, and (ii) with respect to a distribution of Subordinated Debentures to holders of Trust Securities in connection with a dissolution or liquidation of IBC Capital, Subordinated Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the holder to whom such Subordinated Debentures are distributed. "Liquidation Amount" means the stated amount of $25 per Trust Security. After the liquidation date fixed for any distribution of Subordinated Debentures for Preferred Securities (i) such Preferred Securities will no longer be deemed to be outstanding, (ii) The Depository Trust Company (the "Depositary") or its nominee, as the record holder of the Preferred Securities, will receive a registered global certificate or certificates representing the Subordinated Debentures to be delivered upon such distribution and (iii) any certificates representing Preferred Securities not held by the Depositary or its nominee will be deemed to represent the Subordinated Debentures having a principal amount equal to the Liquidation Amount of such Preferred Securities, and bearing accrued and unpaid interest in an amount equal to the accrued and unpaid Distributions on the Preferred Securities until such certificates are presented to the Administrative Trustees or their agent for transfer or reissuance. There can be no assurance as to the market prices for the Preferred Securities or the Subordinated Debentures that may be distributed in exchange for Preferred Securities if a dissolution and liquidation of IBC Capital were to occur. Accordingly, the Preferred Securities that an investor may purchase, or the Subordinated Debentures that the investor may receive on dissolution and liquidation of IBC Capital, may trade at a discount to the price that the investor paid to purchase the Preferred Securities offered hereby. REDEMPTION PROCEDURES Preferred Securities redeemed on each Redemption Date shall be redeemed at the Redemption Price with the applicable proceeds from the contemporaneous redemption of the Subordinated Debentures. Redemptions of the Preferred Securities shall be made and the Redemption Price shall be payable on each Redemption Date only to the extent that IBC Capital has funds on hand available for the payment of such Redemption Price. See "Subordination of Common Securities." 49 52 If IBC Capital gives a notice of redemption in respect of its Preferred Securities, then, by 12:00 noon, eastern standard time, on the Redemption Date, to the extent funds are available, the Property Trustee will deposit irrevocably with the Depositary funds sufficient to pay the aggregate Redemption Price and will give the Depositary irrevocable instructions and authority to pay the Redemption Price to the holders of such Preferred Securities. See "Book-Entry Issuance." If such Preferred Securities are no longer in book-entry form, the Property Trustee, to the extent funds are available, will irrevocably deposit with the paying agent for such Preferred Securities funds sufficient to pay the aggregate Redemption Price and will give such paying agent irrevocable instructions and authority to pay the Redemption Price to the holders thereof upon surrender of their certificates evidencing such Preferred Securities. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date for any Preferred Securities called for redemption shall be payable to the holders of such Preferred Securities on the relevant record dates for the related Distribution Dates. If notice of redemption shall have been given and funds deposited as required, then upon the date of such deposit, all rights of the holders of such Preferred Securities so called for redemption will cease, except the right of the holders of such Preferred Securities to receive the Redemption Price, but without interest on such Redemption Price, and such Preferred Securities will cease to be outstanding. In the event that any date fixed for redemption of Preferred Securities is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day which is a Business Day (and without any additional Distribution, interest or other payment in respect of any such delay). In the event that payment of the Redemption Price in respect of Preferred Securities called for redemption is improperly withheld or refused and not paid either by IBC Capital or by the Company pursuant to the Guarantee. Distributions on such Preferred Securities will continue to accrue at the then applicable rate, from the Redemption Date originally established by IBC Capital for such Preferred Securities to the date such Redemption Price is actually paid, in which case the actual payment date will be the date fixed for redemption for purposes of calculating the Redemption Price. See "Description of Guarantee." Subject to applicable law (including, without limitation, United States federal securities law), the Company or its subsidiaries may at any time and from time to time purchase outstanding Preferred Securities by tender, in the open market or by private agreement. Payment of the Redemption Price on the Preferred Securities and any distribution of Subordinated Debentures to holders of Preferred Securities shall be made to the applicable recordholders thereof as they appear on the register for such Preferred Securities on the relevant record date, which date shall be one Business Day prior to the relevant Redemption Date or liquidation date, as applicable; provided, however, that in the event that any Preferred Securities are not in book-entry form, the relevant record date for such Preferred Securities shall be a date at least 15 days prior to the Redemption Date or liquidation date, as applicable. If less than all of the Preferred Securities and Common Securities issued by IBC Capital are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of such Preferred Securities and Common Securities to be redeemed shall be allocated pro rata to the Preferred Securities and the Common Securities based upon the relative Liquidation Amounts of such classes. The particular Preferred Securities to be redeemed shall be selected by the Property Trustee from the outstanding Preferred Securities not previously called for redemption, by such method as the Property Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $25 or an integral multiple of $25 in excess thereof) of the Liquidation Amount of Preferred Securities of a denomination larger than $25. The Property Trustee shall promptly notify the trust 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 the Trust Agreement, unless the context otherwise requires, all provisions relating to the redemption of Preferred Securities shall relate to the portion of the aggregate Liquidation Amount of Preferred Securities which has been or is to be redeemed. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder of Trust Securities to be redeemed at its registered address. Unless the Company defaults in payment of the Redemption Price on the Subordinated Debentures, on and after the 50 53 Redemption Date interest will cease to accrue on such Subordinated Debentures or portions thereof (and distributions will cease to accrue on the related Preferred Securities or portions thereof) called for redemption. SUBORDINATION OF COMMON SECURITIES Payment of Distributions on, and the Redemption Price of, the Preferred Securities and Common Securities, as applicable, shall be made pro rata based on the Liquidation Amount of the Preferred Securities and Common Securities; provided, however, that if on any Distribution Date or Redemption Date a Debenture Event of Default shall have occurred and be continuing, no payment of any Distribution on, or Redemption Price of, any of the Common Securities, and no other payment on account of the redemption, liquidation or other acquisition of such Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions on all of the outstanding Preferred Securities for all Distribution periods terminating on or prior thereto, or in the case of payment of the Redemption Price the full amount of such Redemption Price on all of the outstanding Preferred Securities then called for redemption, shall have been made or provided for, and all funds available to the Property Trustee shall first be applied to the payment in full in cash of all Distributions on, or Redemption Price of, the Preferred Securities then due and payable. In the case of any Event of Default resulting from a Debenture Event of Default, the Company as holder of the Common Securities will be deemed to have waived any right to act with respect to any such Event of Default under the applicable Trust Agreement until the effect of all such Events of Default with respect to such Preferred Securities have been cured, waived or otherwise eliminated. Until any such Events of Default under the Trust Agreement with respect to the Preferred Securities have been so cured, waived or otherwise eliminated, the Property Trustee shall act solely on behalf of the holders of the Preferred Securities and not on behalf of the Company as holder of the Common Securities, and only the holders of the Preferred Securities will have the right to direct the Property Trustee to act on their behalf. LIQUIDATION DISTRIBUTION UPON TERMINATION The Company will have the right at any time to terminate IBC Capital and cause the Subordinated Debentures to be distributed to the holders of the Preferred Securities. Such right is subject to the Company having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. In addition, pursuant to the Trust Agreement, IBC Capital shall automatically terminate upon expiration of its term and shall earlier terminate on the first to occur of: (i) certain events of bankruptcy, dissolution or liquidation of the Company; (ii) the distribution of a Like Amount of the Subordinated Debentures to the holders of its Trust Securities, if the Company, as Depositor, has given written direction to the Property Trustee to terminate IBC Capital (which direction is optional and wholly within the discretion of the Company, as Depositor); (iii) redemption of all of the Preferred Securities as described under "Description of Preferred Securities -- Redemption or Exchange -- Mandatory Redemption;" and (iv) the entry of an order for the dissolution of IBC Capital by a court of competent jurisdiction. If an early termination occurs as described in clause (i), (ii) or (iv) above, IBC Capital shall be liquidated by the Trustees as expeditiously as the Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of IBC Capital as provided by applicable law, to the holders of such Trust Securities a Like Amount of the Subordinated Debentures, unless such distribution is determined by the Property Trustee not to be practical, in which event such holders will be entitled to receive out of the assets of IBC Capital available for distribution to holders, after satisfaction of liabilities to creditors of IBC Capital as provided by applicable law, an amount equal to, in the case of holders of Preferred Securities, the aggregate of the Liquidation Amount plus accrued and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). If such Liquidation Distribution can be paid only in part because IBC Capital has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by IBC Capital on the Preferred Securities shall be paid on a pro rata basis. The holder(s) of the Common Securities will be entitled to receive distributions upon any such liquidation pro rata with the 51 54 holders of the 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. Under current United States federal income tax law and interpretations and assuming, as expected, IBC Capital is treated as a grantor trust, a distribution of the Subordinated Debentures should not be a taxable event to holders of the Preferred Securities. Should there be a change in law, a change in legal interpretation, a Tax Event or other circumstances, however, the distribution could be a taxable event to holders of the Preferred Securities. See "Certain Federal Income Tax Consequences." If the Company elects neither to redeem the Subordinated Debentures prior to maturity nor to liquidate IBC Capital and distribute the Subordinated Debentures to holders of the Preferred Securities, the Preferred Securities will remain outstanding until the repayment of the Subordinated Debentures. If the Company elects to liquidate IBC Capital and thereby causes the Subordinated Debentures to be distributed to holders of the Preferred Securities in liquidation of IBC Capital, the Company shall continue to have the right to shorten or extend the maturity of such Subordinated Debentures, subject to certain conditions. See "Description of Subordinated Debentures -- General." LIQUIDATION VALUE The amount payable on the Preferred Securities in the event of any liquidation of IBC Capital is $25 per Preferred Security plus accrued and unpaid Distributions thereon to the date of payment, which may be in the form of a distribution of such amount in Subordinated Debentures, subject to certain exceptions. See "Description of Preferred Securities -- Liquidation Distribution Upon Termination." EVENTS OF DEFAULT; NOTICE Any one of the following events constitutes an "Event of Default" under the Trust Agreement (an "Event of Default") with respect to the Preferred Securities (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (i) the occurrence of a Debenture Event of Default under the Indenture (see "Description of Subordinated Debentures -- Debenture Events of Default"); or (ii) default by 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 (iii) default by the Property Trustee in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or (iv) default in the performance, or breach, in any material respect, of any covenant or warranty of the Trustees in the Trust Agreement (other than a covenant or warranty a default in the performance of which or the breach of which is dealt with in clauses (ii) or (iii) above), and continuation of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the 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" under the Trust Agreement; or (v) the occurrence of certain events of bankruptcy or insolvency with respect to the Property Trustee and the failure by the Company to appoint a successor Property Trustee within 60 days thereof. Within five Business Days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee shall transmit notice of such Event of Default to the holders of the Preferred Securities, the Administrative Trustees and the Company, as Depositor, unless such Event of Default shall 52 55 have been cured or waived. The Company, as Depositor, and the Administrative Trustees are required to file annually with the Property Trustee a certificate as to whether or not they are in compliance with all the conditions and covenants applicable to them under each Trust Agreement. If a Debenture Event of Default has occurred and is continuing, the Preferred Securities shall have a preference over the Common Securities upon termination of IBC Capital as described above. See "-- Liquidation Distribution Upon Termination." The existence of an Event of Default does not entitle the holders of Preferred Securities to accelerate the maturity thereof. REMOVAL OF IBC CAPITAL TRUSTEES Unless a Debenture Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by the holder of the Common Securities. If a Debenture Event of Default has occurred and is continuing, the Property Trustee and the Delaware Trustee may be removed at such time by the holders of a majority in Liquidation Amount of the outstanding Preferred Securities. In no event will the holders of the Preferred Securities have the right to vote to appoint, remove or replace the Administrative Trustees, which voting rights are vested exclusively in the Company as the holder of the Common Securities. No resignation or removal of a Trustee and no appointment of a successor trustee shall be effective until the acceptance of appointment by the successor trustee in accordance with the provisions of the applicable Trust Agreement. CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE Unless an Event of Default shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust Property may at the time be located, the Company, as the holder of the Common Securities, and the Administrative Trustees shall have power to appoint one or more persons either to act as a co-trustee, jointly with the Property Trustee, of all or any part of such Trust Property, or to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such person or persons in such capacity any property, title, right or power deemed necessary or desirable, subject to the provisions of the applicable Trust Agreement. In case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make such appointment. MERGER OR CONSOLIDATION OF TRUSTEES Any person into which the Property Trustee, the Delaware Trustee or any Administrative Trustee that is not a natural person may be merged or converted or with which it may be consolidated, or any person resulting from any merger, conversion or consolidation to which such Trustee shall be a party, or any person succeeding to all or substantially all the corporate trust business of such Trustee, shall be the successor of such Trustee under each Trust Agreement, provided such person shall be otherwise qualified and eligible. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF IBC CAPITAL IBC Capital may not merge with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other person, except as described below. IBC Capital may, at the request of the Company, with the consent of the Administrative Trustees and without the consent of the holders of the Preferred Securities, merge with or into, consolidate, amalgamate, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to a trust organized as such under the laws of any State; provided, that (i) such successor entity either (a) expressly assumes all of the obligations of IBC Capital 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 Company expressly appoints a trustee of such successor entity possessing the same powers and duties as the Property Trustee in its capacity as the holder of the Subordinated Debentures, (iii) the Successor Securities are listed, or any Successor Securities will be listed upon notification of issuance, 53 56 on the Nasdaq National Market or 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) such successor entity has a purpose identical to that of IBC Capital, (vi) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Company has received an opinion from independent counsel to IBC Capital experienced in such matters to the effect that (a) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any Successor Securities) in any material respect, and (b) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither IBC Capital nor such successor entity will be required to register as an investment company under the Investment Company Act of 1940, as amended (the "Investment Company Act") and (vii) the Company or any permitted successor or assignee 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, IBC Capital shall not, except with the consent of holders of 100% in Liquidation Amount of the Preferred Securities, consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to any other entity or permit any other entity to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease would cause IBC Capital or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. VOTING RIGHTS; AMENDMENT OF TRUST AGREEMENT Except as provided below and under "Description of Guarantee -- Amendments and Assignment" and as otherwise required by law and the Trust Agreement, the holders of the Preferred Securities will have no voting rights. The Trust Agreement may be amended from time to time by the Company, the Property Trustee and the Administrative Trustees, without the consent of the holders of the Preferred Securities (i) to cure any ambiguity, correct or supplement any provisions in such Trust Agreement that may be inconsistent with any other provision, or to make any other provisions with respect to matters or questions arising under the Trust Agreement, which shall not be inconsistent with the other provisions of the Trust Agreement, or (ii) to modify, eliminate or add to any provisions of the Trust Agreement to such extent as shall be necessary to ensure that IBC Capital will be classified for United States federal income tax purposes as a grantor trust at all times that any Trust Securities are outstanding or to ensure that IBC Capital will not be required to register as an "investment company" under the Investment Company Act; provided, however, that in the case of clause (i), such action shall not adversely affect in any material respect the interests of any holder of Trust Securities, and any amendments of such Trust Agreement shall become effective when notice thereof is given to the holders of Trust Securities. The Trust Agreement may be amended by the Trustees and the Company with (i) the consent of holders representing not less than a majority in the aggregate Liquidation Amount of the outstanding Trust Securities, and (ii) receipt by the Trustees of an opinion of counsel to the effect that such amendment or the exercise of any power granted to the Trustees in accordance with such amendment will not affect IBC Capital's status as a grantor trust for United States federal income tax purposes or IBC Capital's exemption from status as an "investment company" under the Investment Company Act. Notwithstanding anything in this paragraph to the contrary, without the consent of each holder of Trust Securities, such Trust Agreement may not be amended to (i) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Securities as of a specified date or (ii) restrict the right of a holder of Trust Securities to institute suit for the enforcement of any such payment on or after such date. So long as any Subordinated Debentures are held by the Property Trustee, the Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or executing any trust or power conferred on the Property Trustee with respect to the Subordinated Debentures, (ii) waive any past default that is waivable under the Indenture, (iii) exercise any right to rescind 54 57 or annul a declaration that the principal of all the Subordinated Debentures shall be due and payable or (iv) consent to any amendment, modification or termination of the Indenture or the Subordinated Debentures, where such consent shall be required, without, in each case, obtaining the prior approval of the holders of a majority in aggregate Liquidation Amount of all outstanding Preferred Securities; provided, however, that where a consent under the Indenture would require the consent of each holder of Subordinated Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior consent of each holder of the Preferred Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the holders of the Preferred Securities except by subsequent vote of the holders of the Preferred Securities. The Property Trustee shall notify each holder of Preferred Securities of any notice of default with respect to the Subordinated Debentures. In addition to obtaining the foregoing approvals of the holders of the Preferred Securities, prior to taking any of the foregoing actions, the Trustees shall obtain an opinion of counsel experienced in such matters to the effect that IBC Capital will not be classified as an association taxable as a corporation for United States federal income tax purposes on account of such action. Any required approval of holders of Preferred Securities may be given at a meeting of holders of Preferred Securities convened for such purpose or pursuant to written consent. The Property Trustee will cause a notice of any meeting at which holders of Preferred Securities are entitled to vote, or of any matter upon which action by written consent of such holders is to be taken, to be given to each holder of record of Preferred Securities in the manner set forth in the Trust Agreement. No vote or consent of the holders of Preferred Securities will be required for IBC Capital to redeem and cancel its Preferred Securities in accordance with the Trust Agreement. Notwithstanding the fact that holders of Preferred Securities are entitled to vote or consent under any of the circumstances described above, any of the Preferred Securities that are owned by the Company, the Trustees or any affiliate of the Company or any Trustee, shall, for purposes of such vote or consent, be treated as if they were not outstanding. GLOBAL PREFERRED SECURITIES The Preferred Securities will be represented by one or more global certificates registered in the name of the Depositary or its nominee ("Global Preferred Security"). Beneficial interests in the Preferred Securities will be shown on, and transfers thereof will be effected only through, records maintained by participants in the Depositary. Except as described below, Preferred Securities in certificated form will not be issued in exchange for the global certificates. See "Book-Entry Issuance." A global security shall be exchangeable for Preferred Securities registered in the names of persons other than the Depositary or its nominee only if (i) the Depositary notifies the Company that it is unwilling or unable to continue as a depositary for such global security and no successor depositary shall have been appointed, or if at any time the Depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, at a time when the Depositary is required to be so registered to act as such depositary, (ii) the Company in its sole discretion determines that such global security shall be so exchangeable, or (iii) there shall have occurred and be continuing an Event of Default under the Indenture. Any global security that is exchangeable pursuant to the preceding sentence shall be exchangeable for definitive certificates registered in such names as the Depositary shall direct. It is expected that such instructions will be based upon directions received by the Depositary with respect to ownership of beneficial interests in such global security. In the event that Preferred Securities are issued in definitive form, such Preferred Securities will be in denominations of $25 and integral multiples thereof and may be transferred or exchanged at the offices described below. Unless and until it is exchanged in whole or in part for the individual Preferred Securities represented thereby, a Global Preferred Security may not be transferred except as a whole by the Depositary to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by the Depositary or any nominee to a successor Depositary or any nominee of such successor. 55 58 Payments on Preferred Securities represented by a global security will be made to the Depositary, as the depositary for the Preferred Securities. In the event Subordinated Debentures are issued in definitive form, principal and Distributions will be payable, the transfer of the Preferred Securities will be registrable, and Preferred Securities will be exchangeable for Preferred Securities of other denominations of a like aggregate Liquidation Amount, at the corporate office of the Property Trustee in Boston, Massachusetts, or at the offices of any paying agent or transfer agent appointed by the Administrative Trustees, provided that payment of any Distribution may be made at the option of the Administrative Trustees by check mailed to the address of the persons entitled thereto or by wire transfer. In addition, if the Preferred Securities are issued in certificated form, the record dates for payment of Distributions will be the 15th day of the month in which the relevant Distribution Date occurs. For a description of the terms of the depositary arrangements relating to payments, transfers, voting rights, redemptions and other notices and other matters, see "Book-Entry Issuance." Upon the issuance of a Global Preferred Security, and the deposit of such Global Preferred Security with or on behalf of the Depositary, the Depositary for such Global Preferred Security or its nominee will credit, on its book-entry registration and transfer system, the respective aggregate Liquidation Amounts of the individual Preferred Securities represented by such Global Preferred Securities to the accounts of Participants. Such accounts shall be designated by the dealers, underwriters or agents with respect to such Preferred Securities. Ownership of beneficial interests in a Global Preferred Security will be limited to Participants or persons that may hold interests through Participants. Ownership of beneficial interests in such Global Preferred Security will be shown on, and the transfer of that ownership will be effected only through, records maintained by the applicable Depositary or its nominee (with respect to interests of Participants) and the records of Participants (with respect to interests of persons who hold through Participants). The laws of some states require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to transfer beneficial interests in a Global Preferred Security. So long as the Depositary for a Global Preferred Security, or its nominee, is the registered owner of such Global Preferred Security, such Depositary or such nominee, as the case may be, will be considered the sole owner or holder of the Preferred Securities represented by such Global Preferred Security for all purposes under the Indenture governing such Preferred Securities. Except as provided below, owners of beneficial interests in a Global Preferred Security will not be entitled to have any of the individual Preferred Securities represented by such Global Preferred Security registered in their names, will not receive or be entitled to receive physical delivery of any such Preferred Securities in definitive form and will not be considered the owners or holders thereof under the Indenture. None of the Company, the Property Trustee, any Paying Agent, or the Securities Registrar for such Preferred Securities will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of the Global Preferred Security representing such Preferred Securities or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Company expects that the Depositary for Preferred Securities or its nominee, upon receipt of any payment of the Liquidation Amount, Redemption Price or Distributions in respect of a permanent Global Preferred Security immediately will credit Participants' accounts with payments in amounts proportionate to their respective beneficial interest in the aggregate Liquidation Amount of such Global Preferred Security as shown on the records of such Depositary or its nominee. The Company also expects that payments by Participants to owners of beneficial interests in such Global Preferred Security held through such Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name." Such payments will be the responsibility of such Participants. If the Depositary for the Preferred Securities is at any time unwilling, unable or ineligible to continue as depositary and a successor depositary is not appointed by the Company within 90 days, IBC Capital will issue individual Preferred Securities in exchange for the Global Preferred Security. In addition, IBC Capital may at any time and in its sole discretion, subject to any limitations described herein relating to such Preferred Securities, determine not to have any Preferred Securities represented by one or more Global Preferred 56 59 Securities and, in such event, will issue individual Preferred Securities in exchange for the Global Preferred Security or Securities representing the Preferred Securities. Further, if IBC Capital so specifies with respect to the Preferred Securities, an owner of a beneficial interest in a Global Preferred Security representing Preferred Securities may, on terms acceptable to the Company, the Property Trustee and the Depositary for such Global Preferred Security, receive individual Preferred Securities in exchange for such beneficial interests, subject to any limitations described herein. In any such instance, an owner of a beneficial interest in a Global Preferred Security will be entitled to physical delivery of individual Preferred Securities represented by such Global Preferred Security equal in Liquidation Amount to such beneficial interest and to have such Preferred Securities registered in its name. Individual Preferred Securities so issued will be issued in denominations, unless otherwise specified by IBC Capital, of $25 and integral multiples thereof. PAYMENT AND PAYING AGENCY Payments in respect of the Preferred Securities shall be made to the Depositary, which shall credit the relevant accounts at the Depositary on the applicable Distribution Dates or, if any Preferred Securities are not held by the Depositary, such payments shall be made by check mailed to the address of the holder entitled thereto as such address shall appear on the register of holders of Preferred Securities. The paying agent ("Paying Agent") shall initially be the Property Trustee and any copaying agent chosen by the Property Trustee and acceptable to the Administrative Trustees and the Company. The Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Property Trustee and the Company. In the event that the Property Trustee shall no longer be the Paying Agent, the Administrative Trustees shall appoint a successor (which shall be a bank or trust company acceptable to the Administrative Trustees and the Company) to act as Paying Agent. REGISTRAR AND TRANSFER AGENT The Property Trustee will act as registrar and transfer agent for the Preferred Securities. Registration of transfers of Preferred Securities will be effected without charge by or on behalf of IBC Capital, but upon payment of any tax or other governmental charges that may be imposed in connection with any transfer or exchange. IBC Capital will not be required to register or cause to be registered the transfer of Preferred Securities after such Preferred Securities have been called for redemption. INFORMATION CONCERNING THE PROPERTY TRUSTEE The Property Trustee, other than upon the occurrence and during the continuance of an Event of Default, undertakes to perform only such duties as are specifically set forth in the Trust Agreement and, after such Event of Default, must exercise the same degree of care and skill as a prudent person would exercise or use in the conduct of his or her own affairs. Subject to this provision, the Property Trustee is under no obligation to exercise any of the powers vested in it by the Trust Agreement at the request of any holder of Preferred Securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. If no Event of Default has occurred and is continuing and the Property Trustee is required to decide between alternative causes of action, construe ambiguous provisions in the applicable Trust Agreement or is unsure of the application of any provision of the Trust Agreement, and the matter is not one on which holders of Preferred Securities are entitled under the Trust Agreement to vote, then the Property Trustee shall take such action as is directed by the Company and if not so directed, shall take such action as it deems advisable and in the best interests of the holders of the Trust Securities and will have no liability except for its own bad faith, negligence or willful misconduct. MISCELLANEOUS The Administrative Trustees are authorized and directed to conduct the affairs of and to operate IBC Capital in such a way that IBC Capital will not be deemed to be an "investment company" required to be registered under the Investment Company Act or classified as an association taxable as a corporation for United States federal income tax purposes and so that the Subordinated Debentures will be treated as indebtedness of the Company for United States federal income tax purposes. In this connection, the Company 57 60 and the Administrative Trustees are authorized to take any action, not inconsistent with applicable law, the certificate of trust of IBC Capital or the Trust Agreement, that the Company and the Administrative Trustees determine in their discretion to be necessary or desirable for such purposes, as long as such action does not materially adversely affect the interests of the holders of the related Preferred Securities. Holders of the Preferred Securities have no preemptive or similar rights. DESCRIPTION OF SUBORDINATED DEBENTURES The Subordinated Debentures will be issued under the Indenture, dated as of , 1996 ("Indenture"), between the Company and State Street Bank and Trust Company, as trustee ("Debenture Trustee"). The following summary of the material terms and provisions of the Subordinated Debentures and the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, the Indenture, which has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part, and to the Trust Indenture Act. The Indenture is qualified under the Trust Indenture Act. Whenever particular defined terms of the Indenture are referred to herein, such defined terms are incorporated herein or therein by reference. Concurrently with the issuance of the Preferred Securities, IBC Capital will invest the proceeds thereof, together with the consideration paid by the Company for the Common Securities, in the Subordinated Debentures issued by the Company. The Subordinated Debentures will be issued as unsecured debt under the Indenture. GENERAL The Subordinated Debentures will bear interest at the annual rate of % of the principal amount thereof, payable quarterly in arrears on March 31, June 30, September 30, and December 31 of each year (each, an "Interest Payment Date") beginning March 31, 1997, to the person in whose name each Subordinated Debenture is registered, subject to certain exceptions, at the close of business on the Business Day next preceding such Interest Payment Date. It is anticipated that, until the liquidation, if any, of IBC Capital, the Subordinated Debentures will be held in the name of the Property Trustee in trust for the benefit of the holders of the Preferred Securities. The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on the Subordinated Debentures is not a Business Day, then payment of the interest payable on such date will be made on the next succeeding day that is a Business Day (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. Accrued interest that is not paid on the applicable Interest Payment Date will bear additional interest on the amount thereof (to the extent permitted by law) at the rate per annum of % thereof, compounded quarterly. The term "interest" as used herein shall include quarterly interest payments, interest on quarterly interest payments not paid on the applicable Interest Payment Date and Additional Sums (as defined below), as applicable. The Subordinated Debentures will mature on , 2026 (such date, as it may be shortened or extended as hereinafter described, the "Stated Maturity"). Such date may be shortened at any time by the Company to any date not earlier than , 2001, 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 but in no event to a date later than , 2045, provided that at the time such election is made and at the time of extension (i) the Company is not in bankruptcy, otherwise insolvent or in liquidation, (ii) the Company is not in default in the payment of any interest or principal on the Subordinated Debentures, and (iii) IBC Capital is not in arrears on payments of Distributions on the Preferred Securities and no deferred Distributions are accumulated. In the event that the Company elects to shorten or extend the Stated Maturity of the Subordinated Debentures, it shall give notice to the Debenture Trustee, and the Debenture Trustee shall give notice of such shortening or extension to the holders of the Subordinated Debentures no more than 180 days and no less than 90 days prior to the effectiveness thereof. 58 61 The Subordinated Debentures will be unsecured and will rank junior and be subordinate in right of payment to all Senior Debt and Subordinated Debt of the Company and, in certain circumstances relating to the dissolution, winding-up, liquidation or reorganization of the Company, to all Additional Senior Obligations of the Company. See "Description of Subordinated Debentures -- Subordination." Because the Company is a holding company, the right of the Company to participate in any distribution of assets of any of the Banks, upon any such Bank's liquidation or reorganization or otherwise (and thus the ability of holders of the Preferred Securities to benefit indirectly from such distribution), is subject to the prior claims of creditors of that Bank, except to the extent that the Company may itself be recognized as a creditor of such Bank. Accordingly, the Subordinated Debentures will be effectively subordinated to all existing and future liabilities of the Banks, and holders of Subordinated Debentures should look only to the assets of the Company for payments on the Subordinated Debentures. The Indenture does not limit the incurrence or issuance of other secured or unsecured debt of the Company, including Senior Debt, Subordinated Debt, Additional Senior Obligations, whether under the Indenture or any existing indenture or other indenture that the Company may enter into in the future or otherwise. See "Description of Subordinated Debentures -- Subordination." The Indenture does not contain provisions that afford holders of the Subordinated Debentures protection in the event of a highly leveraged transaction or other similar transaction involving the Company that may adversely affect such holders. OPTION TO EXTEND INTEREST PAYMENT PERIOD So long as no Event of Default under the Indenture has occurred and is continuing, the Company has the right under the Indenture at any time during the term of the Subordinated Debentures to defer the payment of interest at any time or from time to time for a period not exceeding 20 consecutive quarters (each such period an "Extension Period"), provided that no Extension Period may extend beyond the Stated Maturity of the Preferred Securities. At the end of such Extension Period, the Company must pay all interest then accrued and unpaid (together with interest thereon at the annual rate of %, compounded quarterly, to the extent permitted by applicable law). During an Extension Period, interest will continue to accrue and holders of Subordinated Debentures (or holders of Preferred Securities while such series is outstanding) will be required to accrue interest income for United States federal income tax purposes. See "Certain Federal Income Tax Consequences -- Potential Extension of Interest Payment Period and Original Issue Discount." During any such Extension Period, the Company may not, and may not permit any Bank or other subsidiary of the Company to, (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the Company's capital stock or (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of the Company (including other Subordinated Debentures) that rank pari passu with or junior in interest to the Subordinated Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu or junior in interest to the Subordinated Debentures (other than (a) dividends or distributions in Common Stock, (b) any declaration of a 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, (c) payments under the Guarantee, and (d) purchases of Common Stock related to rights under any of the Company's benefit plans for its directors, officers or employees). Prior to the termination of any such Extension Period, the Company may further extend the interest payment period, provided that no Extension Period may exceed 20 consecutive quarters or extend beyond the Stated Maturity of the Subordinated Debentures. Upon the termination of any such Extension Period and the payment of all amounts then due on any Interest Payment Date, the Company may elect to begin a new Extension Period subject to the above requirements. No interest shall be due and payable during an Extension Period, except at the end thereof. The Company must give the Property Trustee, the Administrative Trustees and the Debenture Trustee notice of its election of such Extension Period at least one Business Day prior to the earlier of (i) the date the Distributions on the Preferred Securities would have been payable except for the election to begin such Extension Period or (ii) the date the Administrative Trustees are required to give notice to the Nasdaq National Market or other applicable self-regulatory organization, or to holders of such Preferred Securities on the record date for the date such Distributions are payable, but in any event not less than one Business Day prior to such record date. 59 62 The Debenture Trustee shall give notice of the Company's election to begin a new Extension Period to the holders of the Preferred Securities. Subject to the foregoing, there is no limitation on the number of times that the Company may elect to begin an Extension Period. ADDITIONAL SUMS If IBC Capital is required to pay any additional taxes, duties or other governmental charges as a result of a Tax Event, the Company will pay as additional amounts on the Subordinated Debentures such amounts ("Additional Sums") as shall be required so that the Distributions payable by IBC Capital shall not be reduced as a result of any such additional taxes, duties or other governmental charges. REDEMPTION OR EXCHANGE 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, the Subordinated Debentures are redeemable prior to maturity at the option of the Company (i) on or after , 2001, in whole at any time or in part from time to time or (ii) at any time in whole (but not in part), upon the occurrence and during the continuance of a Debenture Tax Event or an Investment Company Event in each case at a redemption price equal to the accrued and unpaid interest on the Subordinated Debentures so redeemed to the date fixed for redemption, plus 100% of the principal amount thereof. "Debenture Tax Event" means the receipt by the Company of an opinion of counsel experienced in such matters to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official 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 Subordinated Debentures under the Indenture, there is more than an insubstantial risk that (i) interest payable by the Company on the Subordinated Debentures is not, or within 90 days of the date of such opinion will not be, deductible by the Company, in whole or in part, for United States federal income tax purposes, (ii) IBC Capital is, or will be within 90 days after the date of such opinion of counsel, subject to United States federal income tax with respect to income received or accrued on the Subordinated Debentures, or (iii) IBC Capital is, or will be within 90 days after the date of such opinion of counsel, subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges. Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of Subordinated Debentures to be redeemed at its registered address. Unless the Company defaults in payment of the redemption price, on and after the redemption date interest ceases to accrue on such Subordinated Debentures or portions thereof called for redemption. The Subordinated Debentures will not be subject to any sinking fund. DISTRIBUTION UPON LIQUIDATION As described under "Description of Preferred Securities--Liquidation Distribution Upon Termination," under certain circumstances involving the termination of IBC Capital, the Subordinated Debentures may be distributed to the holders of the Preferred Securities in liquidation of IBC Capital after satisfaction of liabilities to creditors of IBC Capital as provided by applicable law. If distributed to holders of Preferred Securities in liquidation, the Subordinated Debentures will initially be issued in the form of one or more global securities and the Depositary, or any successor depositary for the Preferred Securities, will act as depositary for the Subordinated Debentures. It is anticipated that the depositary arrangements for the Subordinated Debentures would be substantially identical to those in effect for the Preferred Securities. If the Subordinated Debentures are distributed to the holders of Preferred Securities upon the liquidation of IBC Capital, the Company will use its best efforts to list the Subordinated Debentures on the Nasdaq National Market or such stock exchanges, if any, on which the Preferred Securities are then listed. There can be no assurance as to the market price of any Subordinated Debentures that may be distributed to the holders of Preferred Securities. 60 63 RESTRICTIONS ON CERTAIN PAYMENTS The Company will covenant, as to the Subordinated Debentures, that if at such time (i) there shall have occurred any event of which the Company has actual knowledge that (a) with the giving of notice or the lapse of time, or both, would constitute an "Event of Default" under the Indenture with respect to the Subordinated Debentures of IBC Capital, and (b) in respect of which the Company shall not have taken reasonable steps to cure, or (ii) the Company shall have given notice of its election of an Extension Period as provided in the Indenture with respect to the Subordinated Debentures and shall not have rescinded such notice, or such Extension Period, or any extension thereof, shall be continuing, it will not, and will not permit any subsidiary of the Company to, (1) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of the Company's capital stock or (2) make any payment of principal, interest or premium, if any, on or repay or repurchase or redeem any debt securities of the Company that rank pari passu with or junior in interest to the Subordinated Debentures or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any subsidiary of the Company if such guarantee ranks pari passu or junior in interest to the Subordinated Debentures (other than (a) dividends or distributions in Common Stock, (b) any declaration of a 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, (c) payments under the Guarantee and (d) purchases of Common Stock related to rights under any of the Company's benefit plans for its directors, officers or employees. SUBORDINATION In the Indenture, the Company has covenanted and agreed that any Subordinated Debentures issued thereunder will be subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations to the extent provided in the Indenture. Upon any payment or distribution of assets to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshaling of assets or any bankruptcy, insolvency, debt restructuring or similar proceedings in connection with any insolvency or bankruptcy proceeding of the Company, the holders of Senior Debt, Subordinated Debt and Additional Senior Obligations will first be entitled to receive payment in full of principal of (and premium, if any) and interest, if any, on such Senior Debt, Subordinated Debt and Additional Senior Obligations before the holders of Subordinated Debentures will be entitled to receive or retain any payment in respect of the principal of or interest, if any, on the Subordinated Debentures. In the event of the acceleration of the maturity of any Subordinated Debentures, the holders of all Senior Debt, Subordinated Debt and Additional Senior Obligations outstanding at the time of such acceleration will first be entitled to receive payment in full of all amounts due thereon (including any amounts due upon acceleration) before the holders of Subordinated Debentures will be entitled to receive or retain any payment in respect of the principal of or interest, if any, on the Subordinated Debentures; provided, however, that holders of Subordinated Debt shall not be entitled to receive payment of any such amounts to the extent that such Subordinated Debt is by its terms subordinated to trade creditors. No payments on account of principal or interest, if any, in respect of the Subordinated Debentures may be made if there shall have occurred and be continuing a default in any payment with respect to Senior Debt, Subordinated Debt or Additional Senior Obligations or an event of default with respect to any Senior Debt, Subordinated Debt or Additional Senior Obligations resulting in the acceleration of the maturity thereof, or if any judicial proceeding shall be pending with respect to any such default. "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 61 64 payment of which, in either case, such person has guaranteed or is responsible or liable, directly or indirectly, as obligor or otherwise. "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 the 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 Subordinated Debentures or to other Debt which is pari passu with, or subordinated to, the Subordinated 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 Subordinated Debentures as a result of the subordination provisions of the Indenture would be greater than they otherwise would have been as a result of any obligation of such holders to pay amounts over to the obligees on such trade accounts payable or accrued liabilities arising in the ordinary course of business as a result of subordination provisions to which such Debt is subject; (v) Debt which constitutes Subordinated Debt, and (vi) any other debt securities issued pursuant to the Indenture. "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 the 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 Subordinated Debentures). "Additional Senior Obligations" means all indebtedness of the Company whether incurred on or prior to the date of the Indenture or thereafter incurred, for claims in respect of derivative products such as interest and foreign exchange rate contracts, commodity contracts and similar arrangements; provided, however, that Additional Senior Obligations do 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 Subordinated Debentures or to rank pari passu in right of payment with the Subordinated 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. The Indenture places no limitation on the amount of additional Senior Debt that may be incurred by the Company. The Company expects from time to time to incur additional indebtedness constituting Senior Debt, Subordinated Debt and Additional Senior Obligations. DENOMINATIONS, REGISTRATION AND TRANSFER The Subordinated Debentures will be represented by global certificates registered in the name of the Depositary or its nominee. Beneficial interests in the Subordinated Debentures will be shown on, and transfers thereof will be effected only through, records maintained by the Depositary. Except as described below, Subordinated Debentures in certificated form will not be issued in exchange for the global certificates. See "Book-Entry Issuance." Unless and until a Global Subordinated Debenture is exchanged in whole or in part for the individual Subordinated Debentures represented thereby, it may not be transferred except as a whole by the Depositary for such Global Subordinated Debenture to a nominee of such Depositary or by a nominee of such Depositary to such Depositary or another nominee of such Depositary or by the Depositary or any nominee to a successor Depositary or any nominee of such successor. A global security shall be exchangeable for Subordinated Debentures registered in the names of persons other than the Depositary or its nominee only if (i) the Depositary notifies the Company that it is unwilling or unable to continue as a depositary for such global security and no successor depositary shall have been 62 65 appointed, or if at any time the Depositary ceases to be a clearing agency registered under the Securities Exchange Act of 1934, as amended, at a time when the Depositary is required to be so registered to act as such depositary, (ii) the Company in its sole discretion determines that such global security shall be so exchangeable or (iii) there shall have occurred and be continuing an Event of Default under the Indenture with respect to such global security. Any global security that is exchangeable pursuant to the preceding sentence shall be exchangeable for definitive certificates registered in such names as the Depositary shall direct. It is expected that such instructions will be based upon directions received by the Depositary from its Participants with respect to ownership of beneficial interests in such global security. In the event that Subordinated Debentures are issued in definitive form, such Subordinated Debentures will be in denominations of $25 and integral multiples thereof and may be transferred or exchanged at the offices described below. Payments on Subordinated Debentures represented by a global security will be made to the Depositary, as the depositary for the Subordinated Debentures. In the event Subordinated Debentures are issued in definitive form, principal and interest will be payable, the transfer of the Subordinated Debentures will be registrable, and Subordinated Debentures will be exchangeable for Subordinated Debentures of other denominations of a like aggregate principal amount, at the corporate office of the Debenture Trustee in Boston, Massachusetts, or at the offices of any paying agent or transfer agent appointed by the Company (the "Place of Payment"), provided that payment of interest may be made at the option of the Company by check mailed to the address of the persons entitled thereto or by wire transfer. In addition, if the Subordinated Debentures are issued in certificated form, the record dates for payment of interest will be the 15th day of the last month of each calendar quarter. For a description of the Depositary and the terms of the depositary arrangements relating to payments, transfers, voting rights, redemptions and other notices and other matters, see "Book-Entry Issuance." The Company will appoint the Debenture Trustee as securities registrar under the Indenture (the "Securities Registrar"). Subordinated Debentures may be presented for exchange as provided above, and may be presented for registration of transfer (with the form of transfer endorsed thereon, or a satisfactory written instrument of transfer, duly executed), at the office of the Securities Registrar. The Company may at any time rescind the designation of any such transfer agent or approve a change in the location through which any such transfer agent acts, provided that the Company maintains a transfer agent in the Place of Payment. The Company may at any time designate additional transfer agents with respect to the Subordinated Debentures. In the event of any redemption, neither the Company nor the Debenture Trustee shall be required to (i) issue, register the transfer of or exchange Subordinated Debentures during a period beginning at the opening of business 15 days before the day of selection for redemption of Subordinated Debentures and ending at the close of business on the day of mailing of the relevant notice of redemption or (ii) transfer or exchange any Subordinated Debentures so selected for redemption, except, in the case of any Subordinated Debentures being redeemed in part, any portion thereof not to be redeemed. GLOBAL SUBORDINATED DEBENTURES Upon the issuance of the Global Subordinated Debenture, and the deposit of such Global Subordinated Debenture with or on behalf of the Depositary, the Depositary for such Global Subordinated Debenture or its nominee will credit, on its book-entry registration and transfer system, the respective principal amounts of the individual Subordinated Debentures represented by such Global Subordinated Debenture to the accounts of persons that have accounts with such Depositary ("Participants"). Ownership of beneficial interests in a Global Subordinated Debenture will be limited to Participants or persons that may hold interests through Participants. Ownership of beneficial interests in such Global Subordinated Debenture will be shown on, and the transfer of that ownership will be effected only through, records maintained by the applicable Depositary or its nominee (with respect to interests of Participants) and the records of Participants (with respect to interests of persons who hold through Participants). The laws of some states require that certain purchasers of securities take physical delivery of such securities in definitive form. Such limits and such laws may impair the ability to transfer beneficial interests in a Global Subordinated Debenture. So long as the Depositary for a Global Subordinated Debenture, or its nominee, is the registered owner of such Global Subordinated Debenture, such Depositary or such nominee, as the case may be, will be 63 66 considered the sole owner or holder of the Subordinated Debentures represented by such Global Subordinated Debenture for all purposes under the Indenture governing such Subordinated Debentures. Except as provided below, owners of beneficial interests in a Global Subordinated Debenture will not be entitled to have any of the individual Subordinated Debentures represented by such Global Subordinated Debenture registered in their names, will not receive or be entitled to receive physical delivery of any such Subordinated Debentures in definitive form and will not be considered the owners or holders thereof under the Indenture. Payments of principal of and interest on individual Subordinated Debentures represented by a Global Subordinated Debenture registered in the name of the Depositary or its nominee will be made to the Depositary or its nominee, as the case may be, as the registered owner of the Global Subordinated Debenture representing such Subordinated Debentures. None of the Company, the Debenture Trustee, any Paying Agent, or the Securities Registrar for such Subordinated Debentures will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of the Global Subordinated Debenture representing such Subordinated Debentures or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The Company expects that the Depositary or its nominee, upon receipt of any payment of principal, premium or interest in respect of a permanent Global Subordinated Debenture representing the Subordinated Debentures, immediately will credit Participants' accounts with payments in amounts proportionate to their respective beneficial interest in the principal amount of the Global Subordinated Debenture as shown on the records of such Depositary or its nominee. The Company also expects that payments by Participants to owners of beneficial interests in such Global Subordinated Debenture held through such Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of customers in bearer form or registered in "street name." Such payments will be the responsibility of such Participants. If the Depositary is at any time unwilling, unable or ineligible to continue as depositary and a successor depositary is not appointed by the Company within 90 days, the Company will issue individual Subordinated Debentures in exchange for the Global Subordinated Debenture. In addition, the Company may at any time and in its sole discretion, determine not to have the Subordinated Debentures represented by one or more Global Subordinated Debentures and, in such event, will issue individual Subordinated Debentures in exchange for the Global Subordinated Debenture. Further, if the Company so specifies with respect to the Subordinated Debentures, an owner of a beneficial interest in a Global Subordinated Debenture representing Subordinated Debentures may, on terms acceptable to the Company, the Debenture Trustee and the Depositary for such Global Subordinated Debenture, receive individual Subordinated Debentures in exchange for such beneficial interests. In any such instance, an owner of a beneficial interest in a Global Subordinated Debenture will be entitled to physical delivery of individual Subordinated Debentures equal in principal amount to such beneficial interest and to have such Subordinated Debentures registered in its name. Individual Subordinated Debentures so issued will be issued in denominations, unless otherwise specified by the Company, of $25 and integral multiples thereof. PAYMENT AND PAYING AGENTS Payment of principal of and any interest on the Subordinated Debentures will be made at the office of the Debenture Trustee in the City of Boston, Massachusetts, except that at the option of the Company payment of any interest may be made (i) except in the case of Global Subordinated Debentures, by check mailed to the address of the person entitled thereto as such address shall appear in the securities register or (ii) by transfer to an account maintained by the person entitled thereto as specified in the securities register, provided that proper transfer instructions have been received by the regular record date. Payment of any interest on Subordinated Debentures will be made to the person in whose name such Subordinated Debenture is registered at the close of business on the regular record date for such interest, except in the case of Defaulted Interest. The Company may at any time designate additional Paying Agents or rescind the designation of any Paying Agent; however the Company will at all times be required to maintain a Paying Agent in each Place of Payment for the Subordinated Debentures. 64 67 Any moneys deposited with the Debenture Trustee or any Paying Agent, or then held by the Company in trust, for the payment of the principal of or interest on the Subordinated Debentures and remaining unclaimed for two years after such principal or interest has become due and payable shall, at the request of the Company, be repaid to the Company and the holder of such Subordinated Debenture shall thereafter look, as a general unsecured creditor, only to the Company for payment thereof. MODIFICATION OF INDENTURE From time to time the Company and the Debenture Trustee may, without the consent of the holders of the Subordinated Debentures, amend, waive or supplement the Indenture for specified purposes, including, among other things, curing ambiguities, defects or inconsistencies (provided that any such action does not materially adversely affect the interests of the holders of the Subordinated Debentures or the Preferred Securities so long as they remain outstanding) and qualifying, or maintaining the qualification of, the Indenture under the Trust Indenture Act. The Indenture contains provisions permitting the Company and the Debenture Trustee, with the consent of the holders of not less than a majority in principal amount of the outstanding Subordinated Debentures, to modify the Indenture in a manner affecting the rights of the holders of the Subordinated Debentures; provided, that no such modification may, without the consent of the holder of each outstanding Subordinated Debenture, (i) change the Stated Maturity of the Subordinated Debentures, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon or (ii) reduce the percentage of principal amount of Subordinated Debentures, the holders of which are required to consent to any such modification of the Indenture, provided that so long as any of the Preferred Securities remain outstanding, no such modification may be made that adversely affects the holders of such Preferred Securities in any material respect, and no termination of the Indenture may occur, and no waiver of any Debenture Event of Default or compliance with any covenant under the Indenture may be effective, without the prior consent of the holders of at least a majority of the aggregate Liquidation Amount of the Preferred Securities unless and until the principal of the Subordinated Debentures and all accrued and unpaid interest thereon have been paid in full and certain other conditions are satisfied. DEBENTURE EVENTS OF DEFAULT The Indenture provides that any one or more of the following described events with respect to the Subordinated Debentures that has occurred and is continuing constitutes a "Debenture Event of Default" with respect to the Subordinated Debentures: (i) failure for 30 days to pay any interest on the Subordinated Debentures, when due (subject to the deferral of any due date in the case of an Extension Period); or (ii) failure to pay any principal on the Subordinated Debentures when due whether at maturity, upon redemption by declaration or otherwise; or (iii) failure to observe or perform in any material respect certain other covenants contained in the Indenture for 90 days after written notice to the Company from the Debenture Trustee or the holders of at least 25% in aggregate outstanding principal amount of the Subordinated Debentures; or (iv) certain events in bankruptcy, insolvency or reorganization of the Company. The holders of a majority in aggregate outstanding principal amount of the Subordinated Debentures have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee. The Debenture Trustee or the holders of not less than 25% in aggregate outstanding principal amount of the Subordinated Debentures may declare the principal due and payable immediately upon a Debenture Event of Default. The holders of a majority in aggregate outstanding principal amount of the Subordinated Debentures may annul such declaration and waive the default if the default (other than the non-payment of the principal of the Subordinated Debentures which has become due solely by such acceleration) has been cured and a sum sufficient to pay all matured installments of interest and principal due otherwise than by acceleration has been deposited with the Debenture Trustee. Should the holders of the 65 68 Subordinated Debentures fail to annul such declaration and waive such default, the holders of a majority in aggregate Liquidation Amount of the Preferred Securities shall have such right. The Company is required to file annually with the Debenture Trustee a certificate as to whether or not the Company is in compliance with all the conditions and covenants applicable to it under the Indenture. In case a Debenture Event of Default shall occur and be continuing as to the Subordinated Debentures, the Property Trustee will have the right to declare the principal of and the interest on such Subordinated Debentures, and any other amounts payable under the Indenture, to be forthwith due and payable and to enforce its other rights as a creditor with respect to such Subordinated Debentures. ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF PREFERRED SECURITIES If a Debenture Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest or principal on the Subordinated Debentures on the date such interest or principal is otherwise payable, a holder of Preferred Securities may institute a legal proceeding directly against the Company for enforcement of payment to such holder of the principal of or interest on such Subordinated Debentures having a principal amount equal to the aggregate Liquidation Amount of the Preferred Securities of such holder ("Direct Action"). The Company may not amend the Indenture to remove the foregoing right to bring a Direct Action without the prior written consent of the holders of all of the Preferred Securities. If the right to bring a Direct Action is removed, IBC Capital may become subject to the reporting obligations under the Securities Exchange Act of 1934, as amended. The Company shall have the right under the Indenture to set-off any payment made to such holder of Preferred Securities by the Company in connection with a Direct Action. The holders of the Preferred Securities would not be able to exercise directly any remedies other than those set forth in the preceding paragraph available to the holders of the Subordinated Debentures unless there shall have been an Event of Default under the Trust Agreement. See "Description of Preferred Securities -- Events of Default; Notice." CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS The Indenture provides that the Company shall not consolidate with or merge into any other Person or convey, transfer or lease its properties and assets substantially as an entirety to any Person, and no Person shall consolidate with or merge into the Company or convey, transfer or lease its properties and assets substantially as an entirety to the Company, unless (i) 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 such successor Person expressly assumes the Company's obligations on the Subordinated Debentures issued under the Indenture; (ii) immediately after giving effect thereto, no Debenture Event of Default, and no event which, after notice or lapse of time or both, would become a Debenture Event of Default, shall have occurred and be continuing; and (iii) certain other conditions as prescribed in the Indenture are met. The general provisions of the Indenture do not afford holders of the Subordinated Debentures protection in the event of a highly leveraged or other transaction involving the Company that may adversely affect holders of the Subordinated Debentures. SATISFACTION AND DISCHARGE The Indenture provides that when, among other things, all Subordinated Debentures not previously delivered to the Debenture Trustee for cancellation (i) have become due and payable or (ii) will become due and payable at their Stated Maturity within one year, and the Company deposits or causes to be deposited with the Debenture Trustee trust funds, in trust, for the purpose and in an amount in the currency or currencies in which the Subordinated Debentures are payable sufficient to pay and discharge the entire indebtedness on the Subordinated Debentures not previously delivered to the Debenture Trustee for cancellation, for the principal and interest to the date of the deposit or to the Stated Maturity, as the case may 66 69 be, then the Indenture will cease to be of further effect (except as to the Company's obligations to pay all other sums due pursuant to the Indenture and to provide the officers' certificates and opinions of counsel described therein), and the Company will be deemed to have satisfied and discharged the Indenture. GOVERNING LAW The Indenture and the Subordinated Debentures will be governed by and construed in accordance with the laws of the State of Michigan. INFORMATION CONCERNING THE DEBENTURE TRUSTEE The Debenture Trustee shall have and be subject to all the duties and responsibilities specified with respect to an indenture trustee under the Trust Indenture Act. Subject to such provisions, the Debenture Trustee is under no obligation to exercise any of the powers vested in it by the Indenture at the request of any holder of Subordinated Debentures, unless offered reasonable indemnity by such holder against the costs, expenses and liabilities which might be incurred thereby. The Debenture Trustee is not required to expend or risk its own funds or otherwise incur personal financial liability in the performance of its duties if the Debenture Trustee reasonably believes that repayment or adequate indemnity is not reasonably assured to it. The Company will covenant in the Indenture, as to the Subordinated Debentures, that if and so long as (i) IBC Capital is the holder of all such Subordinated Debentures, (ii) a Tax Event in respect of IBC Capital has occurred and is continuing and (iii) the Company has elected, and has not revoked such election, to pay Additional Sums (as defined under "Description of Preferred Securities -- Redemption or Exchange") in respect of the Preferred Securities, the Company will pay to IBC Capital such Additional Sums. The Company will also covenant, as to the Subordinated Debentures, (i) to maintain directly or indirectly 100% ownership of the Common Securities of IBC Capital to which Subordinated Debentures have been issued, provided that certain successors which are permitted pursuant to the Indenture may succeed to the Company's ownership of the Common Securities, (ii) not to voluntarily terminate, wind up or liquidate IBC Capital, except upon prior approval of the Federal Reserve if then so required under applicable capital guidelines or policies of the Federal Reserve, and (a) in connection with a distribution of Subordinated Debentures to the holders of the Preferred Securities in liquidation of IBC Capital, or (b) in connection with certain mergers, consolidations or amalgamations permitted by the related Trust Agreement and (iii) to use its reasonable efforts, consistent with the terms and provisions of the related Trust Agreement, to cause IBC Capital to remain classified as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes. BOOK-ENTRY ISSUANCE The Depositary will act as securities depositary for all of the Preferred Securities and the Subordinated Debentures. The Preferred Securities and the Subordinated Debentures will be issued only as fully-registered securities registered in the name of Cede & Co. (the Depositary's nominee). One or more fully-registered global certificates will be issued for the Preferred Securities and the Subordinated Debentures and will be deposited with the Depositary. The Depositary is a limited purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Exchange Act. The Depositary holds securities that its Participants deposit with the Depositary. The Depositary also facilitates the settlement among Participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in Participants' accounts, thereby eliminating the need for physical movement of securities certificates. "Direct Participants" include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. The Depositary is owned by a number of its Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc. Access to the the Depositary system is also 67 70 available to others such as securities brokers and dealers, banks and trust companies that clear through or maintain custodial relationships with Direct Participants, either directly or indirectly ("Indirect Participants"). The rules applicable to the Depositary and its Participants are on file with the Commission. Purchases of Preferred Securities or Subordinated Debentures within the Depositary system must be made by or through Direct Participants, which will receive a credit for the Preferred Securities or Subordinated Debentures on the Depositary's records. The ownership interest of each actual purchaser of each Preferred Security and each Subordinated Debenture ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records. Beneficial Owners will not receive written confirmation from the Depositary of their purchases, but Beneficial Owners are expected to receive written confirmations providing details of the transactions, as well as periodic statements of their holdings, from the Direct or Indirect Participants through which the Beneficial Owners purchased Preferred Securities or Subordinated Debentures. Transfers of ownership interests in the Preferred Securities or Subordinated Debentures are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in Preferred Securities or Subordinated Debentures, except in the event that use of the book-entry system for the Preferred Securities of IBC Capital or Subordinated Debentures is discontinued. The Depositary has no knowledge of the actual Beneficial Owners of the Preferred Securities or Subordinated Debentures; the Depositary's records reflect only the identity of the Direct Participants to whose accounts such Preferred Securities or Subordinated Debentures are credited, which may or may not be the Beneficial Owners. The Participants will remain responsible for keeping account of their holdings on behalf of their customers. Conveyance of notices and other communications by the Depositary to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners and the voting rights of Direct Participants, Indirect Participants and Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time. Redemption notices will be sent to Cede & Co. as the registered holder of the Preferred Securities or Subordinated Debentures. If less than all of the Preferred Securities or the Subordinated Debentures are being redeemed, the Depositary will determine by lot or pro rata the amount of the Preferred Securities of each Direct Participant to be redeemed. Although voting with respect to the Preferred Securities or the Subordinated Debentures is limited to the holders of record of the Preferred Securities or Subordinated Debentures, in those instances in which a vote is required, neither the Depositary nor Cede & Co. will itself consent or vote with respect to Preferred Securities or Subordinated Debentures. Under its usual procedures, the Depositary would mail an omnibus proxy (the "Omnibus Proxy") to the relevant Trustee as soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts such Preferred Securities or Subordinated Debentures are credited on the record date (identified in a listing attached to the Omnibus Proxy). Distribution payments on the Preferred Securities or the Subordinated Debentures will be made by the relevant Trustee to the Depositary. The Depositary's practice is to credit Direct Participants' accounts on the relevant payment date in accordance with their respective holdings shown on the Depositary's records unless the Depositary has reason to believe that it will not receive payments on such payment date. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices and will be the responsibility of such Participant and not of the Depositary, the relevant Trustee, IBC Capital or the Company, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of Distributions to the Depositary is the responsibility of the relevant Trustee, disbursement of such payments to Direct Participants is the responsibility of the Depositary, and disbursements of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Participants. 68 71 The Depositary may discontinue providing its services as securities depositary with respect to any of the Preferred Securities or the Subordinated Debentures at any time by giving reasonable notice to the relevant Trustee and the Company. In the event that a successor securities depositary is not obtained, definitive Preferred Security or Subordinated Debenture certificates representing such Preferred Securities or Subordinated Debentures are required to be printed and delivered. The Company, at its option, may decide to discontinue use of the system of book-entry transfers through the Depositary (or a successor depositary). After a Debenture Event of Default, the holders of a majority in liquidation preference of Preferred Securities or aggregate principal amount of Subordinated Debentures may determine to discontinue the system of book-entry transfers through the Depositary. In any such event, definitive certificates for such Preferred Securities or Subordinated Debentures will be printed and delivered. The information in this section concerning the Depositary and the Depositary's book-entry system has been obtained from sources that IBC Capital and the Company believe to be accurate, but IBC Capital and the Company assume no responsibility for the accuracy thereof. Neither IBC Capital nor the Company has any responsibility for the performance by the Depositary or its Participants of their respective obligations as described herein or under the rules and procedures governing their respective operations. DESCRIPTION OF GUARANTEE The Preferred Securities Guarantee Agreement (the "Guarantee") will be executed and delivered by the Company concurrently with the issuance of the Preferred Securities for the benefit of the holders of the Preferred Securities. State Street Bank and Trust Company will act as indenture trustee ("Guarantee Trustee") under the Guarantee for the purposes of compliance with the Trust Indenture Act, and the Guarantee will be qualified as an Indenture under the Trust Indenture Act. The following summary of the material terms and provisions of the Guarantee does not purport to be complete and is subject to, and qualified in its entirety by reference to, all of the provisions of the Guarantee Agreement, including the definitions therein of certain terms, and the Trust Indenture Act. The form of the Guarantee has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. The Guarantee Trustee will hold the Guarantee for the benefit of the holders of the Preferred Securities. GENERAL The Guarantee will be an irrevocable guarantee on a subordinated basis of IBC Capital's obligations under the Preferred Securities, but will apply only to the extent that IBC Capital has funds sufficient to make such payments, and is not a guarantee of collection. The Company will irrevocably agree to pay in full on a subordinated basis, to the extent set forth herein, the Guarantee Payments (as defined below) to the holders of the Preferred Securities, as and when due, regardless of any defense, right of set-off or counterclaim that IBC Capital may have or assert other than the defense of payment. The following payments with respect to the Preferred Securities, to the extent not paid by or on behalf of IBC Capital (the "Guarantee Payments"), will be subject to the Guarantee: (i) any accumulated and unpaid Distributions required to be paid on the Preferred Securities, to the extent that IBC Capital has funds on hand available therefor at such time, (ii) the Redemption Price with respect to any Preferred Securities called for redemption to the extent that IBC Capital has funds on hand available therefor at such time, and (iii) upon a voluntary or involuntary dissolution, winding up or liquidation of IBC Capital (unless the Subordinated Debentures are distributed to holders of the Preferred Securities), the lesser of (a) the Liquidation Distribution and (b) the amount of assets of IBC Capital remaining available for distribution to holders of Preferred Securities. The Company's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Company to the holders of the Preferred Securities or by causing IBC Capital to pay such amounts to such holders. Third party creditors of IBC Capital may proceed directly against the Company under the Expense Agreement, regardless of whether such creditors had notice of the Expense Agreement. If the Company does not make interest payments on the Subordinated Debentures held by IBC Capital, IBC Capital will not be able to pay Distributions on the Preferred Securities and will not have funds legally available therefor. The Guarantee will rank subordinate and junior in right of payment to all Senior Debt, Subordinated Debt, and, under certain circumstances, Additional Senior Obligations of the Company. See 69 72 "-- Status of the Guarantee." Because the Company is a holding company, the right of the Company to participate in any distribution of assets of any subsidiary upon such subsidiary's liquidation or reorganization or otherwise, is subject to the prior claims of creditors of that subsidiary, except to the extent the Company may itself be recognized as a creditor of that subsidiary. Accordingly, the Company's obligations under the Guarantee will be effectively subordinated to all existing and future liabilities of the Company's subsidiaries, and claimants should look only to the assets of the Company for payments thereunder. Except as otherwise described herein, the Guarantee does not limit the incurrence or issuance of other secured or unsecured debt of the Company, including Senior Debt, whether under the Indenture, any other indenture that the Company may enter into in the future, or otherwise. The Company has, through the Guarantee, the Trust Agreement, the Subordinated Debentures, the Indenture and the Expense Agreement, taken together, fully, irrevocably and unconditionally guaranteed all of IBC Capital's obligations under the Preferred Securities. No single document standing alone or operating in conjunction with fewer than all of the other documents constitutes such guarantee. It is only the combined operation of these documents that has the effect of providing a full, irrevocable and unconditional guarantee of IBC Capital's obligations under the Preferred Securities. See "Relationship Among the Preferred Securities, the Subordinated Debentures and the Guarantee." STATUS OF THE GUARANTEE The Guarantee will constitute an unsecured obligation of the Company and will rank subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and, under certain circumstances, Additional Senior Obligations of the Company in the same manner as the Subordinated Debentures. The Guarantee will constitute a guarantee of payment and not of collection. For example, the guaranteed party may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding against any other person or entity. The Guarantee will be held for the benefit of the holders of the related Preferred Securities. The Guarantee will not be discharged except by payment of the Guarantee Payments in full to the extent not paid by IBC Capital or upon distribution of the Subordinated Debentures to the holders of the Preferred Securities. The Guarantee does not place a limitation on the amount of additional Senior Debt, Subordinated Debt or Additional Senior Obligations that may be incurred by the Company. The Company expects from time to time to incur additional indebtedness constituting Senior Debt, Subordinated Debt and Additional Senior Obligations. AMENDMENTS AND ASSIGNMENT Except with respect to any changes which do not materially adversely affect the rights of holders of the related Preferred Securities (in which case no vote will be required), the Guarantee may not be amended without the prior approval of the holders of not less than a majority of the aggregate Liquidation Amount of such outstanding Preferred Securities. See "Description of Preferred Securities -- Voting Rights; Amendment of Trust Agreement." All guarantees and agreements contained in the Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Company and shall inure to the benefit of the holders of the Preferred Securities then outstanding. EVENTS OF DEFAULT An event of default under the Guarantee will occur upon the failure of the Company to perform any of its payment or other obligations thereunder. The holders of not less than a majority in aggregate Liquidation Amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of the Guarantee or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under the Guarantee. Any holder of Preferred Securities may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding against IBC Capital, the Guarantee Trustee or any other person or entity. The Company, as guarantor, is required to file annually with the Guarantee Trustee a certificate as to whether or not the Company is in compliance with all the conditions and covenants applicable to it under the Guarantee. 70 73 INFORMATION CONCERNING THE GUARANTEE TRUSTEE The Guarantee Trustee, other than during the occurrence and continuance of a default by the Company in performance of the Guarantee, undertakes to perform only such duties as are specifically set forth in the Guarantee and, after default with respect to any Guarantee, must exercise the same degree of care and skill as a prudent person would exercise or use in the conduct of his or her own affairs. Subject to this provision, the Guarantee Trustee is under no obligation to exercise any of the powers vested in it by the Guarantee at the request of any holder of any Preferred Securities unless it is offered reasonable indemnity against the costs, expenses and liabilities that might be incurred thereby. TERMINATION OF THE GUARANTEE The Guarantee will terminate and be of no further force and effect upon full payment of the Redemption Price of the Preferred Securities, upon full payment of the amounts payable upon liquidation of IBC Capital or upon distribution of the Subordinated Debentures to the holders of the Preferred Securities. The Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any holder of the Preferred Securities must restore payment of any sums paid under such Preferred Securities or the Guarantee. GOVERNING LAW The Guarantee will be governed by and construed in accordance with the laws of the State of Michigan. THE EXPENSE AGREEMENT Pursuant to the Expense Agreement entered into by the Company under the Trust Agreement (the "Expense Agreement"), the Company will irrevocably and unconditionally guarantee to each person or entity to whom IBC Capital becomes indebted or liable, the full payment of any costs, expenses or liabilities of IBC Capital, other than obligations of IBC Capital to pay to the holders of the Preferred Securities or other similar interests in IBC Capital of the amounts due such holders pursuant to the terms of the Preferred Securities or such other similar interests, as the case may be. RELATIONSHIP AMONG THE PREFERRED SECURITIES, THE SUBORDINATED DEBENTURES AND THE GUARANTEE FULL AND UNCONDITIONAL GUARANTEE Payments of Distributions and other amounts due on the Preferred Securities (to the extent IBC Capital has funds available for the payment of such Distributions) are irrevocably guaranteed by the Company as and to the extent set forth under "Description of Guarantee." The Company and IBC Capital believe that, taken together, the Company's obligations under the Subordinated Debentures, the Indenture, the Trust Agreement, the Expense Agreement, and the Guarantee provide, in the aggregate, a full, irrevocable and unconditional guarantee of payment of distributions and other amounts due on the Preferred Securities. No single document standing alone or operating in conjunction with fewer than all of the other documents constitutes such guarantee. It is only the combined operation of these documents that has the effect of providing a full, irrevocable and unconditional guarantee of IBC Capital's obligations under the Preferred Securities. If and to the extent that the Company does not make payments on the Subordinated Debentures, IBC Capital will not pay Distributions or other amounts due on the Preferred Securities. The Guarantee does not cover payment of Distributions when IBC Capital does not have sufficient funds to pay such Distributions. In such event, the remedy of a holder of Preferred Securities is to institute a legal proceeding directly against the Company for enforcement of payment of such Distributions to such holder. The obligations of the Company under the Guarantee are subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and, under certain circumstances, Additional Senior Obligations of the Company. 71 74 SUFFICIENCY OF PAYMENTS As long as payments of interest and other payments are made when due on the Subordinated Debentures, such payments will be sufficient to cover Distributions and other payments due on the Preferred Securities, primarily because (i) the aggregate principal amount of the Subordinated Debentures will be equal to the sum of the aggregate stated Liquidation Amount of the Preferred Securities and Common Securities; (ii) the interest rate and interest and other payment dates on the Subordinated Debentures will match the Distribution rate and Distribution and other payment dates for the Preferred Securities; (iii) the Company shall pay for all and any costs, expenses and liabilities of IBC Capital except IBC Capital's obligations to holders of the Preferred Securities; and (iv) the Trust Agreement further provides that IBC Capital will not engage in any activity that is not consistent with the limited purposes of IBC Capital. Notwithstanding anything to the contrary in the Indenture, the Company has the right to set-off any payment it is otherwise required to make thereunder with and to the extent the Company has theretofore made, or is concurrently on the date of such payment making, a payment under the Guarantee. ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES A holder of any Preferred Security may institute a legal proceeding directly against the Company to enforce its rights under the Guarantee without first instituting a legal proceeding against the Guarantee Trustee, IBC Capital or any other person or entity. A default or event of default under any Senior Debt, Subordinated Debt or Additional Senior Obligations of the Company would not constitute a default or Event of Default. However, in the event of payment defaults under, or acceleration of, Senior Debt, Subordinated Debt or Additional Senior Obligations of the Company, the subordination provisions of the Indenture provide that no payments may be made in respect of the Subordinated Debentures until such Senior Debt, Subordinated Debt or Additional Senior Obligations has been paid in full or any payment default thereunder has been cured or waived. Failure to make required payments on the Subordinated Debentures would constitute an Event of Default. LIMITED PURPOSE OF IBC CAPITAL The Preferred Securities evidence a beneficial interest in IBC Capital, and IBC Capital exists for the sole purpose of issuing its Preferred Securities and Common Securities and investing the proceeds thereof in Subordinated Debentures. A principal difference between the rights of a holder of a Preferred Security and a holder of a Subordinated Debenture is that a holder of a Subordinated Debenture is entitled to receive from the Company the principal amount of and interest accrued on Subordinated Debentures held, while a holder of Preferred Securities is entitled to receive Distributions from IBC Capital (or from the Company under the Guarantee) if and to the extent IBC Capital has funds available for the payment of such Distributions. RIGHTS UPON TERMINATION Upon any voluntary or involuntary termination, winding-up or liquidation of IBC Capital involving the liquidation of the Subordinated Debentures, the holders of the Preferred Securities will be entitled to receive, out of assets held by IBC Capital, the Liquidation Distribution in cash. See "Description of Preferred Securities -- Liquidation Distribution Upon Termination." Upon any voluntary or involuntary liquidation or bankruptcy of the Company, the Property Trustee, as holder of the Subordinated Debentures, would be a subordinated creditor of the Company, subordinated in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations as set forth in the Indenture, but entitled to receive payment in full of principal and interest before any stockholders of the Company receive payments or distributions. Since the Company is the guarantor under the Guarantee and has agreed to pay for all costs, expenses and liabilities of IBC Capital (other than IBC Capital's obligations to the holders of its Preferred Securities), the positions of a holder of the Preferred Securities and a holder of the Subordinated Debentures relative to other creditors and to stockholders of the Company in the event of liquidation or bankruptcy of the Company are expected to be substantially the same. 72 75 DESCRIPTION OF CAPITAL STOCK The Company's authorized capital stock consists of 200,000 shares of preferred stock, none of which are outstanding, and 14,000,000 shares of Common Stock, 2,861,399 of which were outstanding as of September 30, 1996. The following is a description of the Company's capital stock. COMMON STOCK Subject to the rights, if any, of holders of any of the Company's preferred stock then outstanding, all voting rights are vested in holders of shares of Common Stock. Each share of Common Stock entitles the holder thereof to one vote. Holders of shares of Common Stock are not entitled to cumulative voting rights and have no preemptive right to subscribe for additional securities issuable by the Company. Subject to any prior rights of holders of preferred stock then outstanding, holders of the Company's Common Stock are entitled to receive dividends as the Board of Directors may from time to time declare out of funds legally available for that purpose. In the event of the liquidation, dissolution or winding up of the Company, holders of Common Stock are entitled to share pro rata in the assets available for distribution to holders of Common Stock. The outstanding shares of Common Stock are fully paid and non-assessable. The Company's transfer agent is State Street Bank & Trust Company. PREFERRED STOCK The Board of Directors of the Company is authorized to issue shares of preferred stock in series and affix the particular designations and terms of those shares, including dividend rates, conversion prices, voting rights, redemption prices and other matters, without further approval of the Company's shareholders. No series of preferred stock is currently designated by the Board. GENERAL The Company's Articles of Incorporation and the Michigan Business Corporation Act contain provisions which could be utilized by the Company to impede any efforts to acquire control of the Company, namely: Classified Board of Directors. The Company's Articles of Incorporation provide for the division of the Board of Directors into three classes with staggered three-year terms of office. Accordingly, because a person considering the acquisition of voting control of the Company could not necessarily obtain majority control of the Board of Directors until the second annual meeting of the Company's shareholders following the acquisition of voting control, such a person might be dissuaded from seeking to obtain voting control of the Company. Michigan Fair Price Provisions. Chapter 7A of the Michigan Business Corporation Act impacts certain business combinations involving Michigan corporations such as the Company. Except in cases in which certain minimum price, form of consideration, and procedural requirements are satisfied or for certain transactions that may be approved in advance by the Company's Board of Directors, higher than normal voting requirements are imposed with respect to various transactions involving persons who own 10% or more of the Company's voting stock (referred to as "Interested Shareholders"). Transactions to which the higher voting requirements apply require an advisory statement from the Board of Directors and must be approved by not less than 90% of the votes of each class of stock entitled to vote and by not less than two-thirds of the votes, other than the votes of Interested Shareholders who are (or whose affiliates are) a party to the proposed transaction or an affiliate of the Interested Shareholders, of each class entitled to vote. Michigan Shareholder Equity Provisions. Chapter 7B of the Michigan Business Corporation Act affects the voting rights of persons who acquire more than 20%, 33 1/3%, or 50% of a Michigan corporation's voting stock (referred to as "Control Shares"). Chapter 7B denies shareholder voting rights to those persons or entities who make purchase offers or investors who increase their holdings above any of the Control Share levels, unless they are granted voting rights by a majority vote of all disinterested shareholders (shareholders excluding the bidders or owners of Control Shares and the corporation's management). If the shareholders do not elect to grant voting rights to Control Shares, under certain circumstances, the Control Shares may become subject to redemption. 73 76 CERTAIN FEDERAL INCOME TAX CONSEQUENCES GENERAL This section is a summary of the material United States federal income tax considerations that may be relevant to the purchasers of Preferred Securities and represents the opinion of Varnum, Riddering, Schmidt & Howlett LLP, counsel to the Company and IBC Capital, insofar as it relates to matters of law and legal conclusions. The conclusions expressed herein are based upon current provisions of the Internal Revenue Code of 1986, as amended ("Code"), regulations thereunder and current administrative rulings and court decisions, all of which are subject to change at any time, with possible retroactive effects. Subsequent changes may cause tax consequences to vary substantially from the consequences described below. Furthermore, the authorities on which this summary is based are subject to various interpretations, and it is therefore possible that the federal income tax treatment of the purchase, ownership, and disposition of Preferred Securities may differ from the treatment described below. No attempt has been made in the following discussion to comment on all United States federal income tax matters affecting purchasers of Preferred Securities. Moreover, the discussion generally focuses on holders of Preferred Securities who are individual citizens or residents of the United States and who acquire Preferred Securities on their original issue at their offering price and hold Preferred Securities as capital assets. The discussion has only limited application to dealers in securities, corporations, estates, trusts or nonresident aliens and does not address all the tax consequences that may be relevant to holders who may be subject to special tax treatment, such as, for example, banks, thrifts, real estate investment trusts, regulated investment companies, insurance companies, dealers in securities or currencies, tax-exempt investors, or persons that will hold the Preferred Securities as a position in a "straddle," as part of a "synthetic security" or "hedge," as part of a "conversion transaction" or other integrated investment, or as other than a capital asset. This summary also does not address the tax consequences to persons that have a functional currency other than the U.S. dollar or the tax consequences to shareholders, partners or beneficiaries of a holder of Preferred Securities. Further, it does not include any description of any alternative minimum tax consequences or the tax laws of any state or local government or of any foreign government that may be applicable to the Preferred Securities. Accordingly, each prospective investor should consult, and should rely exclusively on, the investor's own tax advisors in analyzing the federal, state, local and foreign tax consequences of the purchase, ownership or disposition of Preferred Securities. CLASSIFICATION OF THE SUBORDINATED DEBENTURES The Company intends to take the position that the Subordinated Debentures will be classified for United States federal income tax purposes as indebtedness of the Company under current law, and, by acceptance of a Preferred Security, each holder covenants to treat the Subordinated Debentures as indebtedness and the Preferred Securities as evidence of an indirect beneficial ownership interest in the Subordinated Debentures. No assurance can be given, however, that such position of the Company will not be challenged by the Internal Revenue Service or, if challenged, that such a challenge will not be successful. The remainder of this discussion assumes that the Subordinated Debentures will be classified for United States federal income tax purposes as indebtedness of the Company. CLASSIFICATION OF IBC CAPITAL With respect to the Preferred Securities, Varnum, Riddering, Schmidt & Howlett LLP, counsel to the Company and IBC Capital, has rendered its opinion generally to the effect that, under then current law and assuming full compliance with the terms of the Trust Agreement and Indenture, IBC Capital will be classified for United States federal income tax purposes as a grantor trust and not as an association taxable as a corporation. Accordingly, for United States federal income tax purposes, each holder of Preferred Securities generally will be treated as owning an undivided beneficial interest in the Subordinated Debentures, and each holder will be required to include in its gross income any original issue discount ("OID") accrued with respect to its allocable share of the Subordinated Debentures whether or not cash is actually distributed to such holder. 74 77 POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT Because the Company has the option, under the terms of the Subordinated Debentures, to defer payments of interest by extending interest payment periods for up to 20 consecutive quarters, all of the stated interest payments on the Subordinated Debentures will be treated as OID. Holders of debt instruments issued with OID must include that discount in income on an economic accrual basis before the receipt of cash attributable to the interest, regardless of their method of tax accounting. Generally, all of a holder's taxable interest income with respect to the Subordinated Debentures will be accounted for as OID. Actual payments and distributions of stated interest will not, however, be separately reported as taxable income. The amount of OID that accrues in any quarter will approximately equal the amount of the interest that accrues on the Subordinated Debentures in that quarter at the stated interest rate. In the event that the interest payment period is extended, holders will continue to accrue OID approximately equal to the amount of the interest payment due at the end of the extended interest payment period on an economic accrual basis over the length of the extended interest payment period. Because income on the Preferred Securities will constitute OID, corporate holders of Preferred Securities will not be entitled to a dividends-received deduction with respect to any income recognized with respect to the Preferred Securities. MARKET DISCOUNT AND ACQUISITION PREMIUM Holders of Preferred Securities other than a holder who purchased the Preferred Securities upon original issuance may be considered to have acquired their undivided interests in the Subordinated Debentures with "market discount" or "acquisition premium" as such phrases are defined for United States federal income tax purposes. Such holders are advised to consult their tax advisors as to the income tax consequences of the acquisition, ownership and disposition of the Preferred Securities. RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF IBC CAPITAL Under certain circumstances, as described under "Description of the Preferred Securities -- Redemption or Exchange," the Subordinated Debentures may be distributed to holders of Preferred Securities upon a liquidation of IBC Capital. Under current United States federal income tax law, such a distribution would be treated as a nontaxable exchange to each such holder and would result in such holder having an aggregate tax basis in the Subordinated Debentures received in the liquidation equal to such holder's aggregate tax basis in the Preferred Securities immediately before the distribution. A holder's holding period in the Subordinated Debentures so received in liquidation of IBC Capital would include the period for which such holder held the Preferred Securities. If, however, a Tax Event occurs which results in IBC Capital being treated as an association taxable as a corporation, the distribution would likely constitute a taxable event to holders of the Preferred Securities. Under certain circumstances described herein, the Subordinated Debentures may be redeemed for cash and the proceeds of such redemption distributed to holders in redemption of their Preferred Securities. Under current law, such a redemption would, for United States federal income tax purposes, constitute a taxable disposition of the redeemed Preferred Securities, and a holder would recognize gain or loss as if the holder sold such Preferred Securities for cash. See "Description of Preferred Securities -- Redemption or Exchange." DISPOSITION OF PREFERRED SECURITIES A holder that sells Preferred Securities will recognize gain or loss equal to the difference between the amount realized on the sale of the Preferred Securities and the holder's adjusted tax basis in such Preferred Securities. A holder's adjusted tax basis in the Preferred Securities generally will be its initial purchase price increased by OID previously includible in such holder's gross income to the date of disposition and decreased by payments received on the Preferred Securities to the date of disposition. Such gain or loss will be a capital gain or loss and will be a long-term capital gain or loss if the Preferred Securities have been held for more than one year at the time of sale. 75 78 The Preferred Securities may trade at a price that does not accurately reflect the value of accrued but unpaid interest with respect to the underlying Subordinated Debentures. A holder that disposes of its Preferred Securities between record dates for payments of distributions thereon will be required to include accrued but unpaid interest on the Subordinated Debentures through the date of disposition in income as ordinary income, and to add such amount to its adjusted tax basis in its pro rata share of the underlying Subordinated Debentures deemed disposed of. To the extent the selling price is less than the holder's adjusted tax basis (which basis will include, in the form of OID, all accrued but unpaid interest), a holder will recognize a capital loss. Subject to certain limited exceptions, capital losses cannot be applied to offset ordinary income for United States federal income tax purposes. EFFECT OF PROPOSED CHANGES IN TAX LAWS The Clinton Administration has proposed statutory changes in the Federal income tax rules relating to financial instruments. Under one such proposal, debt with a maximum maturity of more than 20 years that is not shown as debt on the applicable balance sheet of the issuer would be characterized as equity of the issuer, with the result that interest would be nondeductible to the issuer. If this proposal were enacted and applied to the Preferred Securities, a Tax Event would occur. The Company has been advised by counsel that, under certain transition rules contained in the proposed legislation, the Preferred Securities would not be subject to such legislation. Moreover, the Chairman of the House Ways and Means Committee and the Senate Finance Committee, as well as the ranking minority members of the House Ways and Means Committee, have publicly indicated that the proposals, if enacted, would not apply prior to the date of "appropriate Congressional action." Thus, the Company believes such proposed legislation, if ultimately enacted, will not apply to the Preferred Securities. Nevertheless, no assurance can be given in this regard. BACKUP WITHHOLDING AND INFORMATION REPORTING The amount of OID accrued on the Preferred Securities held of record by individual citizens or residents of the United States, or certain trusts, estates, and partnerships, will be reported to the Internal Revenue Service on Forms 1099, which forms should be mailed to such holders of Preferred Securities by January 31 following each calendar year. Payments made on, and proceeds from the sale of, the Preferred Securities may be subject to a "backup" withholding tax (currently at 31%) unless the holder complies with certain identification and other requirements. Any amounts withheld under the backup withholding rules will be allowed as a credit against the holder's United States federal income tax liability, provided the required information is provided to the Internal Revenue Service. THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON THE PARTICULAR SITUATION OF A HOLDER OF PREFERRED SECURITIES. HOLDERS OF PREFERRED SECURITIES SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL OR OTHER TAX LAWS. 76 79 ERISA CONSIDERATIONS Generally, employee benefit plans that are subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or Section 4975 of the Code ("Plans"), may purchase Preferred Securities, subject to the investing fiduciary's determination that the investment in Preferred Securities satisfies ERISA's fiduciary standards and other requirements applicable to investments by the Plan. In any case, the Company and/or any of its affiliates may be considered a "party in interest" (within the meaning of ERISA) or a "disqualified person" (within the meaning of Section 4975 of the Code) with respect to certain plans (generally, Plans maintained or sponsored by, or contributed to by, any such persons). The acquisition and ownership of Preferred Securities by a Plan (or by an individual retirement arrangement or other Plans described in Section 4975(e)(1) of the Code) with respect to which the Company or any of its affiliates is considered a party in interest or a disqualified person, may constitute or result in a prohibited transaction under ERISA or Section 4975 of the Code, unless such Preferred Securities are acquired pursuant to and in accordance with an applicable exemption. As a result, Plans with respect to which the Company or any of its affiliates is a party in interest or a disqualified person should not acquire Preferred Securities unless such Preferred Securities are acquired pursuant to and in accordance with an applicable exemption. Any other Plans or other entities whose assets include Plan assets subject to ERISA or Section 4975 of the Code proposing to acquire Preferred Securities should consult with their own counsel. 77 80 UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement, the form of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part, the Company and IBC Capital have agreed that IBC Capital will sell to Stifel, Nicolaus & Company, Incorporated ("Underwriter") and the Underwriter has agreed to purchase from IBC Capital 600,000 Preferred Securities. The Underwriter proposes initially to offer the Preferred Securities to the public at the initial offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per Preferred Security. The Underwriter may allow, and such dealers may reallow, a discount not in excess of $ per Preferred Security to certain other dealers. After the initial offering, the offering price and other selling terms may be changed by the Underwriter. IBC Capital has granted an option to the Underwriter, exercisable during the 30-day period after the date of this Prospectus, to purchase up to 90,000 additional Preferred Securities to cover over-allotments, if any, at the same price per Preferred Security as the initial 600,000 Preferred Securities to be purchased by the Underwriter. The Underwriter may purchase such Preferred Securities only to cover over-allotments made in connection with the offering. In view of the fact that the proceeds from the sale of Preferred Securities will be used to purchase the Subordinated Debentures issued by the Company, the Underwriting Agreement provides that the Company will pay as Underwriter's Compensation for the Underwriter's services an amount of $ per Preferred Security. The Company and IBC Capital have agreed that, during the period beginning from the date of the Underwriting Agreement and continuing to and including the earlier of (i) the termination of trading restrictions on the Preferred Securities, as determined by the Underwriter, or (ii) days after the closing date, they will not, directly or indirectly, offer, sell, agree to sell or otherwise dispose of any Preferred Securities, any other beneficial interests in the assets of IBC Capital, or any other securities of IBC Capital or the Company which are substantially similar to the Preferred Securities, including any guarantee of such beneficial interests or substantially similar securities, or any securities convertible into or exchangeable for or representing the right to receive securities, preferred securities or any such substantially similar securities of either IBC Capital or the Company, without the prior written consent of the Underwriter, except for the Preferred Securities offered in connection with the offering. The Underwriting Agreement provides that the Company and IBC Capital will indemnify the Underwriter against certain liabilities, including civil liabilities under the Securities Act of 1933, as amended, or will contribute to payments the Underwriter may be required to make in respect thereof. VALIDITY OF SECURITIES Certain matters of Delaware law relating to the validity of the Preferred Securities, the enforceability of the Trust Agreement and the formation of IBC Capital will be passed upon by Richards, Layton & Finger, special Delaware counsel to the Company and IBC Capital. Certain legal matters for the Company and IBC Capital, including the validity of the Guarantee and the Subordinated Debentures will be passed upon for the Company and IBC Capital by Varnum, Riddering, Schmidt & Howlett LLP, Grand Rapids, Michigan, counsel to the Company and IBC Capital. Certain legal matters will be passed upon for the Underwriter by Bryan Cave LLP, St. Louis, Missouri. Varnum Riddering, Schmidt & Howlett LLP and Bryan Cave LLP, will rely on the opinion of Richards, Layton & Finger as to matters of Delaware law. Certain matters relating to United States federal income tax considerations will be passed upon for the Company by Varnum, Riddering, Schmidt & Howlett LLP. 78 81 EXPERTS The consolidated financial statements of the Company as of December 31, 1995 and 1994, and for each of the years in the three year period ended December 31, 1995 included herein and incorporated by reference in this Prospectus and elsewhere in the Registration Statement have been audited by KPMG Peat Marwick LLP, independent accountants, to the extent and for the periods set forth in their report appearing elsewhere herein and incorporated herein by reference. The consolidated financial statements of the Company are included and incorporated herein in reliance upon such report given upon the authority of such firm as an expert in auditing and accounting. The consolidated financial statements of North Bank Corporation as of December 31, 1995 and 1994, and for each of the years in the three year period ended December 31, 1995 included herein and incorporated by reference in this Prospectus and elsewhere in this Registration Statement have been audited by Crowe, Chizek and Company LLP, independent accountants, to the extent and for the periods set forth in their report appearing elsewhere herein, and incorporated herein by reference. The consolidated financial statements of North Bank Corporation are included and incorporated herein in reliance upon such report given upon the authority of such firm as an expert in auditing and accounting. AVAILABLE INFORMATION The Company is subject to the information requirements of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). The reports, proxy statements and other information can be inspected and copied at the Public Reference Section of the Commission Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices located at 7 World Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60601. Copies of such materials can be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web site (which can be found at http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. No separate financial statements of IBC Capital have been included herein. The Company and IBC Capital do not consider that such financial statements would be material to holders of Preferred Securities because IBC Capital is a newly formed special purpose entity, has no operating history or independent operations and is not engaged in and does not propose to engage in any activity other than holding as trust assets the Subordinated Debentures of the Company and issuing the Trust Securities. See "Description of Preferred Securities," "Description of Subordinated Debentures" and "Description of Guarantee." In addition, the Company and IBC Capital do not expect that IBC Capital will be filing reports under the Exchange Act with the Commission. The Company has filed with the Commission a Registration Statement on Form S-2 (herein, together with all amendments and exhibits thereto and documents incorporated by reference, referred to as the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"). This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information, reference is hereby made to the Registration Statement. The statements contained in this Prospectus concerning the contents of any contract or other document referred to are not necessarily complete. Where such contract or other document is an exhibit to the Registration Statement, each statement is qualified in all respects by the provisions of such exhibit, to which reference is hereby made for a full statement of the provisions thereof. 79 82 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company's annual report on Form 10-K for the year ended December 31, 1995, its quarterly reports on Form 10-Q for the quarters ended March 31, 1996, June 30, 1996 and September 30, 1996, and its current report on Form 8-K, dated June 6, 1996 (as amended August 9, 1996), and which have been filed by the Company with the Commission (File No. 0-7818), are incorporated herein by reference. Any statement contained in a document incorporated herein by reference shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. Upon request, the Company will provide, without charge, copies of any documents incorporated by reference herein (other than certain exhibits) to any person to whom a Prospectus is delivered. Requests for such copies should be directed to William R. Kohls, Secretary, Independent Bank Corporation, 230 West Main Street, Ionia, Michigan 48846, telephone (616) 527-9450. 80 83 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS INDEPENDENT BANK CORPORATION AUDITED CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets as of December 31, 1995 and 1994......................... F- 2 Consolidated Statements of Operations for each of the years ended December 31, 1995, 1994 and 1993...................................................................... F- 3 Consolidated Statements of Cash Flows for each of the years ended December 31, 1995, 1994 and 1993...................................................................... F- 4 Consolidated Statements of Shareholders' Equity for each of the years ended December 31, 1995, 1994 and 1993............................................................ F- 5 Notes to Consolidated Financial Statements........................................... F- 6 Independent Auditor's Report......................................................... F-21 INDEPENDENT BANK CORPORATION UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS Interim Consolidated Balance Sheet as of September 30, 1996 (unaudited).............. F-22 Interim Consolidated Statements of Operations for the nine months ended September 30, 1996 and 1995 (unaudited)............................................................... F-23 Interim Consolidated Statements of Cash Flows for the nine months ended September 30, 1996 and 1995 (unaudited)............................................................... F-24 Interim Consolidated Statements of Shareholders' Equity for the nine months ended September 30, 1996 and 1995 (unaudited)............................................ F-25 Notes to Interim Consolidated Financial Statements (unaudited)....................... F-26 NORTH BANK CORPORATION CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Accountants.................................................... F-27 Consolidated Balance Sheets as of December 31, 1995 and 1994......................... F-28 Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993...................................................................... F-29 Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 1995, 1994 and 1993................................................... F-30 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993...................................................................... F-31 Notes to Consolidated Financial Statements........................................... F-32
F-1 84 INDEPENDENT BANK CORPORATION CONSOLIDATED BALANCE SHEETS
YEAR ENDED DECEMBER 31 ---------------------------- 1995 1994 ------------ ------------ ASSETS Cash and Cash Equivalents Cash and due from banks................................................. $ 17,208,000 $ 22,869,000 Federal funds sold...................................................... 850,000 ------------ ------------ Total Cash and Cash Equivalents................................ 17,208,000 23,719,000 ------------ ------------ Securities available for sale............................................. 87,553,000 52,756,000 Securities held to maturity (fair value of $29,031,000 at December 31, 1995; $77,450,000 at December 31, 1994)................................. 27,906,000 77,721,000 Federal Home Loan Bank stock, at cost..................................... 7,710,000 3,433,000 Loans held for sale....................................................... 16,047,000 5,933,000 Loans Commercial and agricultural............................................. 108,879,000 103,984,000 Real estate mortgage.................................................... 225,900,000 166,794,000 Installment............................................................. 83,265,000 65,947,000 ------------ ------------ Total Loans.................................................... 418,044,000 336,725,000 Allowance for loan losses............................................... (5,243,000) (5,054,000) ------------ ------------ Net Loans...................................................... 412,801,000 331,671,000 Property and equipment, net............................................... 9,931,000 9,493,000 Accrued income and other assets........................................... 10,991,000 11,485,000 ------------ ------------ Total Assets................................................... $590,147,000 $516,211,000 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Non-interest bearing.................................................... $ 46,168,000 $ 48,641,000 Savings and NOW......................................................... 215,336,000 227,137,000 Time.................................................................... 150,120,000 133,693,000 ------------ ------------ Total Deposits................................................. 411,624,000 409,471,000 Federal funds purchased................................................. 13,400,000 13,900,000 Other borrowings........................................................ 110,894,000 47,741,000 Accrued expenses and other liabilities.................................. 7,204,000 4,788,000 ------------ ------------ Total Liabilities.............................................. 543,122,000 475,900,000 Commitments and contingent liabilities Shareholders' Equity Preferred stock, no par value -- 200,000 shares authorized; none outstanding Common stock, $1.00 par value -- 14,000,000 shares authorized; issued and outstanding: 2,704,038 shares at December 31, 1995 and 2,589,163 shares at December 31, 1994.................................................. 2,704,000 2,589,000 Capital surplus..................................................... 19,924,000 16,932,000 Retained earnings................................................... 23,683,000 22,910,000 Net unrealized gain (loss) on securities available for sale, net of related tax effect................................................. 714,000 (2,120,000) ------------ ------------ Total Shareholders' Equity..................................... 47,025,000 40,311,000 ------------ ------------ Total Liabilities and Shareholders' Equity................. $590,147,000 $516,211,000 ============ ============
See notes to consolidated financial statements. F-2 85 INDEPENDENT BANK CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, --------------------------------------- 1995 1994 1993 ----------- ----------- ----------- INTEREST INCOME Interest and fees on loans............................ $37,861,000 $29,107,000 $26,128,000 Securities available for sale......................... 2,692,000 2,853,000 1,232,000 Securities held to maturity Taxable............................................ 3,227,000 3,684,000 4,744,000 Tax-exempt......................................... 1,781,000 1,716,000 1,731,000 Other investments..................................... 421,000 460,000 535,000 ----------- ----------- ----------- Total Interest Income............................ 45,982,000 37,820,000 34,370,000 ----------- ----------- ----------- INTEREST EXPENSE Deposits.............................................. 12,470,000 11,092,000 12,027,000 Other borrowings...................................... 5,430,000 1,493,000 278,000 ----------- ----------- ----------- Total Interest Expense........................... 17,900,000 12,585,000 12,305,000 ----------- ----------- ----------- Net Interest Income.............................. 28,082,000 25,235,000 22,065,000 Provision for loan losses............................... 636,000 473,000 657,000 ----------- ----------- ----------- Net Interest Income After Provision for Loan Losses........................................ 27,446,000 24,762,000 21,408,000 ----------- ----------- ----------- NON-INTEREST INCOME Service charges on deposit accounts................... 1,919,000 1,892,000 1,589,000 Net gains (losses) on asset sales Real estate mortgage loans......................... 728,000 249,000 721,000 Securities......................................... (120,000) (174,000) 637,000 Other income.......................................... 1,239,000 1,134,000 951,000 ----------- ----------- ----------- Total Non-interest Income........................ 3,766,000 3,101,000 3,898,000 ----------- ----------- ----------- NON-INTEREST EXPENSE Salaries and employee benefits........................ 12,163,000 10,562,000 9,316,000 Occupancy, net........................................ 1,548,000 1,392,000 1,237,000 Furniture and fixtures................................ 1,345,000 1,248,000 968,000 Other expenses........................................ 6,646,000 6,301,000 6,014,000 ----------- ----------- ----------- Total Non-interest Expense....................... 21,702,000 19,503,000 17,535,000 ----------- ----------- ----------- Income Before Federal Income Tax................. 9,510,000 8,360,000 7,771,000 Federal income tax expense.............................. 2,700,000 2,329,000 2,165,000 ----------- ----------- ----------- Net Income....................................... $ 6,810,000 $ 6,031,000 $ 5,606,000 =========== =========== =========== Income per common share................................. $2.38 $2.09 $1.95 ===== ===== ===== Cash dividends declared per common share................ $0.89 $0.72 $0.50 ===== ===== =====
See notes to consolidated financial statements. F-3 86 INDEPENDENT BANK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------------------ 1995 1994 1993 ------------ ------------ ------------ Net Income............................................ $ 6,810,000 $ 6,031,000 $ 5,606,000 ------------ ------------ ------------ ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH FROM OPERATING ACTIVITIES Proceeds from sales of loans held for sale.......... 51,976,000 38,103,000 50,142,000 Disbursements for loans held for sale............... (54,262,000) (37,411,000) (49,397,000) Provision for loan losses........................... 636,000 473,000 657,000 Deferred federal income tax expense (credit)........ (1,208,000) 474,000 (13,000) Deferred loan fees.................................. 109,000 (179,000) (2,000) Depreciation, amortization of intangible assets and premiums and accretion of discounts on securities and loans........................................ 2,247,000 2,494,000 1,875,000 Net gains on sales of real estate mortgage loans.... (728,000) (249,000) (721,000) Net (gains) losses on sales of securities........... 120,000 174,000 (637,000) Decrease in accrued income and other assets......... 286,000 1,891,000 499,000 Increase (decrease) in accrued expenses and other liabilities................................ 2,587,000 373,000 (213,000) ------------ ------------ ------------ Total Adjustments................................... 1,763,000 6,143,000 2,190,000 ------------ ------------ ------------ Net Cash from Operating Activities............. 8,573,000 12,174,000 7,796,000 ------------ ------------ ------------ CASH FLOW FROM INVESTING ACTIVITIES Proceeds from sales of securities available for sale............................................. 14,054,000 28,384,000 34,341,000 Proceeds from maturities of securities held to maturity......................................... 13,920,000 25,094,000 9,589,000 Principal payments received on securities available for sale......................................... 1,347,000 285,000 Principal payments received on securities held to maturity......................................... 5,116,000 8,866,000 12,868,000 Purchases of securities available for sale.......... (732,000) (34,658,000) (45,589,000) Purchases of securities held to maturity............ (19,423,000) (28,299,000) (30,389,000) Portfolio loans made to customers, net of principal payments received................................ (88,906,000) (54,751,000) 8,134,000 Acquisitions of banks, less cash received........... 3,533,000 Acquisition of branch office, less cash received.... 13,949,000 Capital expenditures................................ (1,642,000) (1,283,000) (2,105,000) ------------ ------------ ------------ Net Cash from Investing Activities............. (62,317,000) (56,362,000) (9,618,000) ------------ ------------ ------------ CASH FLOW FROM FINANCING ACTIVITIES Net increase (decrease) in total deposits........... (12,273,000) (14,149,000) 4,634,000 Net increase (decrease) in short-term borrowings.... (347,000) 16,252,000 (297,000) Proceeds from Federal Home Loan Bank advances....... 104,000,000 44,000,000 6,000,000 Payments of Federal Home Loan Bank advances......... (41,000,000) (10,000,000) Proceeds from issuance of long-term borrowings...... 3,000,000 Retirement of debt.................................. (2,750,000) (250,000) Dividends paid...................................... (2,392,000) (1,926,000) (1,380,000) Proceeds from issuance of common stock.............. 138,000 16,000 Repurchase of common stock.......................... (893,000) (924,000) ------------ ------------ ------------ Net Cash from Financing Activities............. 47,233,000 30,519,000 11,707,000 ------------ ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents................................. (6,511,000) (13,669,000) 9,885,000 Cash and Cash Equivalents at Beginning of Period...... 23,719,000 37,388,000 27,503,000 ------------ ------------ ------------ Cash and Cash Equivalents at End of Period..... $ 17,208,000 $ 23,719,000 $ 37,388,000 ============ ============ ============ Cash paid during the period for Interest............................................ $ 17,604,000 $ 12,696,000 $ 12,572,000 Income taxes........................................ 3,110,000 2,366,000 2,466,000 Transfer of loans to other real estate................ 555,000 254,000 556,000 Transfer of portfolio loans to held for sale.......... 7,100,000 Transfer of securities held to maturity to available for sale............................................ 52,601,000 19,283,000
See notes to consolidated financial statements. F-4 87 INDEPENDENT BANK CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NET REALIZED GAIN (LOSS) ON SECURITIES TOTAL COMMON CAPITAL RETAINED AVAILABLE SHAREHOLDERS' STOCK SURPLUS EARNINGS FOR SALE EQUITY ---------- ----------- ----------- -------------- ------------- Balances at January 1, 1993... $2,590,000 $17,084,000 $14,793,000 $ 0 $ 34,467,000 Net income for 1993........... 5,606,000 5,606,000 Cash dividends declared, $.50 per share................... (1,432,000) (1,432,000) Issuance of 21,477 shares of common stock................ 21,000 387,000 408,000 ---------- ----------- ----------- ----------- ----------- Balances at December 31, 1993........................ 2,611,000 17,471,000 18,967,000 0 39,049,000 Impact of change in accounting for securities, net of $46,000 of related tax effect...................... 90,000 90,000 Net income for 1994........... 6,031,000 6,031,000 Cash dividends declared, $.72 per share................... (2,088,000) (2,088,000) Issuance of 18,356 shares of common stock................ 18,000 345,000 363,000 Repurchase of 40,000 shares of common stock................ (40,000) (884,000) (924,000) Net change in unrealized gain (loss) on securities available for sale, net of $1,138,000 of related tax effect...................... (2,210,000) (2,210,000) ---------- ----------- ----------- ----------- ----------- Balances at December 31, 1994........................ 2,589,000 16,932,000 22,910,000 (2,120,000) 40,311,000 Net income for 1995........... 6,810,000 6,810,000 Cash dividends declared, $.89 per share................... (2,506,000) (2,506,000) 5% stock dividend............. 129,000 3,386,000 (3,531,000) (16,000) Issuance of 22,430 shares of common stock................ 22,000 463,000 485,000 Repurchase of 35,900 shares of common stock................ (36,000) (857,000) (893,000) Transfer of securities held to maturity to available for sale, net of $443,000 of related tax effect.......... 859,000 859,000 Net change in unrealized gain (loss) on securities available for sale, net of $1,017,000 of related tax effect...................... 1,975,000 1,975,000 ---------- ----------- ----------- ----------- ----------- Balances at December 31, 1995........................ $2,704,000 $19,924,000 $23,683,000 $ 714,000 $ 47,025,000 ========== =========== =========== =========== ===========
See notes to consolidated financial statements. F-5 88 INDEPENDENT BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies and practices of Independent Bank Corporation and subsidiaries conform with generally accepted accounting principles and prevailing practices within the banking industry. The following summaries describe the significant accounting and reporting policies that are employed in the preparation of the consolidated financial statements. The Banks transact business in the single industry segment of commercial banking. The Banks' activities cover traditional phases of commercial banking, including checking and savings accounts, commercial and agricultural lending, direct and indirect consumer financing, mortgage lending and deposit box services. The principal markets are the rural and suburban communities across lower Michigan that are served by the Banks' branch networks. Subject to established underwriting criteria, the Banks may also participate in commercial lending transactions with certain non-affiliated banks and purchase real estate mortgage loans from third-party originators. The local economies of the communities served by the Banks are relatively stable and reasonably diversified. Management is required to make estimates and assumptions in the preparation of the financial statements which affect the amounts reported. Material estimates that are particularly susceptible to changes in the near-term relate to the determination of the allowance for loan losses. While Management uses relevant information to recognize losses on loans, future provisions for related losses may be necessary based on changes in economic conditions and customer circumstances. Principles of Consolidation -- The consolidated financial statements include the accounts of Independent Bank Corporation and its subsidiaries. The income, expenses, assets and liabilities of the subsidiaries are included in the respective accounts of the consolidated financial statements, after elimination of all material intercompany accounts and transactions. Statements of Cash Flows -- For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold. Generally, federal funds are sold for one-day periods. The Company reports net cash flows for customer loan and deposit transactions. Loans Held for Sale -- Loans designated as held for sale are carried at the lower of aggregate amortized cost or market value. Lower of cost or market value adjustments, as well as realized gains and losses, are recorded in current earnings. The Company will adopt Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights," ("SFAS #122") on January 1, 1996. SFAS #122 will require the Banks to prospectively recognize rights to service mortgage loans as separate assets. This statement will also require the Banks to assess these mortgage servicing rights for impairment based on the fair value of those rights. The adoption of SFAS #122 on a prospective basis in the first quarter of 1996 is not expected to have a significant effect on the consolidated financial statements. Securities -- The Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities," ("SFAS #115") effective January 1, 1994. Under SFAS #115, the Company is required to classify its securities as trading, held to maturity or available for sale. Trading securities are bought and held principally for the purpose of selling them in the near-term and are reported at fair value with realized and unrealized gains and losses included in earnings. The Company does not have any trading securities. Securities classified as held to maturity represent those securities for which the Banks have the positive intent and ability to hold until maturity and are reported at cost, adjusted for amortization of premiums and accretion of discounts computed on the level yield method. Securities available for sale represent those securities not classified as trading or held to maturity and are reported at fair value with unrealized gains and losses, net of applicable income taxes reported as a separate component of shareholders' equity. Gains and losses realized on the sale of securities available for sale are determined using F-6 89 INDEPENDENT BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED the specific identification method and are recognized on a trade-date basis. Premiums and discounts are recognized in interest income computed on the level yield method. The Company adopted Statement of Financial Accounting Standards No. 119, "Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments," ("SFAS #119") effective December 31, 1994. SFAS #119 requires disclosure about off-balance sheet financial instruments. Loan Revenue Recognition -- Interest on loans is accrued based on the principal amounts outstanding. The accrual of interest income is discontinued when a loan becomes 90 days past due and the borrower's capacity to repay the loan and collateral values appear insufficient. A non-accrual loan may be restored to accrual status when interest and principal payments are current and the loan appears otherwise collectible. Certain loan fees, net of direct loan origination costs, are deferred and recognized as an adjustment of yield over the life of the related loan. Fees received in connection with loan commitments are deferred until the loan is advanced and are then recognized over the life of the loan as an adjustment of yield. Fees on commitments that expire unused are recognized at expiration. Fees received for a letter of credit are recognized as fee revenue over its life. Allowance for Loan Losses -- Some loans may not be repaid in full. Therefore, an allowance for loan losses is maintained at a level which management has determined to be adequate to absorb inherent losses. Management's assessment of the allowance is based on prior years' loss experience, general economic conditions and trends, as well as the review of specific loans. Increases in the allowance are recorded by a provision for loan losses charged to expense and, although management periodically allocates portions of the allowance to specific loans and loan portfolios, the entire allowance is available for any charge-offs which occur. Collection efforts may continue and future recoveries may occur after a loan is charged-off. The Company has adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," ("SFAS #114"). SFAS #114, which has been subsequently amended by SFAS #118, requires the Company to measure its investment in certain impaired loans based on one of three methods: the loan's observable market price, the fair value of the collateral or the present value of expected future cash flows discounted at the loan's effective interest rate. The adoption of this Statement in 1995 did not have a significant effect on the allowance for loan losses. Property and Equipment -- Property and equipment is stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using both straight-line and accelerated methods over the estimated useful lives of the related assets. Other Real Estate -- Other real estate represents properties acquired through foreclosure or by acceptance of a deed in lieu of foreclosure. Prior to 1995, loan collateral which had been in-substance foreclosed was included in other real estate. A portion of these properties has been sold on land contract or financed at below market terms. The carrying values of these properties are periodically evaluated and are adjusted to the lower of cost or fair value minus estimated costs to sell. Other real estate and repossessed assets totaling $760,000 and $1,381,000 at December 31, 1995 and 1994, respectively, are included in other assets. Intangible Assets -- Goodwill, which represents the excess of the purchase price over the fair value of net tangible assets acquired, is amortized on a straight-line basis over the period of expected benefit, generally 12 to 20 years. Goodwill totaled $1,099,000 and $1,188,000 as of December 31, 1995 and 1994, respectively. Other intangible assets are amortized using both straight-line and accelerated methods over 12 to 15 years. Other intangibles amounted to $1,407,000 and $1,096,000 as of December 31, 1995 and 1994, respectively. F-7 90 INDEPENDENT BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED Income Taxes -- Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS #109") with no material impact on the financial statements. SFAS #109 required that the Company employ the asset and liability method of accounting for income taxes. The objective of this method is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. Under the asset and liability method, the effect of a change in tax rates is recognized in income in the period that includes the enactment date. The deferred tax asset is subject to a valuation allowance for that portion of the asset for which it is more likely than not that it will not be realized. The Company and its subsidiaries file a consolidated federal income tax return. Intercompany tax liabilities are settled as if each subsidiary filed a separate return. Common Stock -- At December 31, 1995, 46,387 shares of common stock were reserved for issuance under the Incentive Share Grant Plan, 26,089 shares of common stock were reserved for issuance under the dividend reinvestment plan and 128,275 shares of common stock were reserved for issuance under stock option plans. Earnings Per Share -- Earnings per share is based on 2,861,898 average shares and equivalents outstanding in 1995, 2,890,368 in 1994 and 2,878,386 in 1993. Per share data has been adjusted to give retroactive effect to 5% stock dividends in 1996 and 1995. Retirement Plans -- The Company maintains an employee stock ownership plan as well as a 401(k) plan for substantially all full-time employees. Reclassification -- Certain amounts in the 1994 and 1993 financial statements have been reclassified to conform with the 1995 presentation. NOTE 2 -- ACQUISITIONS On March 7, 1994, KSB Financial, Inc., ("KSB") merged with the Company. As a result, The Kingston State Bank became a subsidiary of the Company. The Company issued 225,649 shares of common stock in exchange for all of the outstanding common stock of KSB. The merger was accounted for as a pooling of interests and, accordingly, the accompanying financial statements were restated to include the accounts and operations of KSB for all periods prior to the merger. Separate results of operations of the combining entities as of December 31, follows:
1994 1993 ----------- ----------- Net Interest Income After Provision For Loan Losses Independent Bank Corporation..................................... $24,427,000 $19,606,000 KSB Financial, Inc. ............................................. 335,000 1,802,000 ----------- ----------- Total......................................................... $24,762,000 $21,408,000 =========== =========== Net Income Independent Bank Corporation..................................... $ 6,021,000 $ 5,376,000 KSB Financial, Inc. ............................................. 10,000 230,000 ----------- ----------- Total......................................................... $ 6,031,000 $ 5,606,000 =========== ===========
In October 1993, the Company acquired American Home Bank ("American") and Pioneer Bank ("Pioneer"). Cash consideration totaled $2,518,000 and $4,589,000 respectively. The transactions were accounted for as purchases and, accordingly, the assets acquired and the liabilities assumed were recorded at F-8 91 INDEPENDENT BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 2 -- ACQUISITIONS -- CONTINUED fair value. The Company's results of operations include revenues and expenses relating to American and Pioneer since September 30, 1993. The pro-forma information presented in the following table is based on historical results of the Company, American and Pioneer. The information has been combined to present the results of operations as if the acquisitions had occurred at the beginning of the period presented. The following pro-forma results for the year ended December 31 are not necessarily indicative of the results which would have actually been attained if the acquisitions had been consummated in the past or what may be attained in the future.
1993 ----------- (UNAUDITED) Total revenue.................................................................. $42,700,000 Net income..................................................................... 5,700,000 Earnings per share............................................................. 1.98
NOTE 3 -- PENDING ACQUISITION On February 2, 1996, the Company entered into a definitive agreement to merge with North Bank Corporation ("NBC"). As a result, North Bank will become a subsidiary of the Company. Cash consideration is anticipated to approximate $16,300,000. At December 31, 1995, NBC had total assets and loans of $153,600,000 and $91,200,000 (unaudited), respectively. The transaction is subject to approval by NBC shareholders and the Federal Reserve and will be accounted for as a purchase. Accordingly, the assets acquired and the liabilities assumed will be recorded at fair value. Goodwill is anticipated to approximate $6,000,000. NOTE 4 -- RESTRICTIONS ON CASH AND DUE FROM BANKS The Banks' legal reserve requirements were satisfied by maintaining non-interest earning vault cash balances of $2,661,000 in 1995 and $2,547,000 in 1994. The Banks do not maintain compensating balances with correspondent banks. NOTE 5 -- SECURITIES Securities available for sale consist of the following at December 31:
UNREALIZED AMORTIZED ------------------------ FAIR COST GAINS LOSSES VALUE ----------- ---------- ---------- ----------- 1995 U.S. Treasury............................. $23,189,000 $ 188,000 $ 105,000 $23,272,000 U.S. Government agencies.................. 6,557,000 79,000 13,000 6,623,000 Mortgage-backed securities................ 37,238,000 661,000 177,000 37,722,000 Obligations of states and political subdivisions........................... 8,682,000 608,000 9,290,000 Other securities.......................... 10,805,000 2,000 161,000 10,646,000 ----------- ---------- ---------- ----------- Total.................................. $86,471,000 $1,538,000 $ 456,000 $87,553,000 =========== ========== ========== =========== 1994 U.S. Treasury............................. $36,099,000 $1,375,000 $34,724,000 Mortgage-backed securities................ 12,718,000 1,034,000 11,684,000 Other securities.......................... 7,151,000 803,000 6,348,000 ----------- ---------- ---------- ----------- Total.................................. $55,968,000 $ 0 $3,212,000 $52,756,000 =========== ========== ========== ===========
F-9 92 INDEPENDENT BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 5 -- SECURITIES -- CONTINUED Securities held to maturity consist of the following at December 31:
UNREALIZED AMORTIZED ------------------------ FAIR COST GAINS LOSSES VALUE ----------- ---------- ---------- ----------- 1995 U.S. Government agencies.................. $ 2,559,000 $ 70,000 $ 2,629,000 Mortgage-backed securities................ 4,487,000 13,000 $ 18,000 4,482,000 Obligations of states and political subdivisions........................... 20,142,000 1,074,000 12,000 21,204,000 Other securities.......................... 718,000 2,000 716,000 ----------- ---------- ---------- ----------- Total.................................. $27,906,000 $1,157,000 $ 32,000 $29,031,000 =========== ========== ========== =========== 1994 U.S. Treasury............................. $ 5,738,000 $ 5,000 $ 223,000 $ 5,520,000 U.S. Government agencies.................. 11,004,000 371,000 10,633,000 Mortgage-backed securities................ 26,545,000 136,000 376,000 26,305,000 Obligations of states and political subdivisions........................... 27,240,000 835,000 163,000 27,912,000 Other securities.......................... 7,194,000 114,000 7,080,000 ----------- ---------- ---------- ----------- Total.................................. $77,721,000 $ 976,000 $1,247,000 $77,450,000 =========== ========== ========== ===========
The amortized cost and approximate fair value of securities at December 31, 1995, by contractual maturity, follow. Actual maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
AVAILABLE FOR SALE HELD TO MATURITY -------------------------- -------------------------- AMORTIZED FAIR AMORTIZED FAIR COST VALUE COST VALUE ----------- ----------- ----------- ----------- Maturing within one year.................. $13,004,000 $12,939,000 $ 1,187,000 $ 1,189,000 Maturing after one year but within five years................................... 19,399,000 19,695,000 9,028,000 9,399,000 Maturing after five years but within ten years................................... 9,922,000 10,446,000 10,607,000 11,229,000 Maturing after ten years.................. 2,591,000 2,726,000 ----------- ----------- ----------- ----------- 42,325,000 43,080,000 23,413,000 24,543,000 Mortgage-backed securities................ 37,238,000 37,722,000 4,487,000 4,482,000 Other securities.......................... 6,908,000 6,751,000 6,000 6,000 ----------- ----------- ----------- ----------- Total................................ $86,471,000 $87,553,000 $27,906,000 $29,031,000 =========== =========== =========== ===========
A summary of proceeds from the sale of securities available for sale and realized gains and losses follows:
REALIZED REALIZED PROCEEDS GAINS LOSSES ----------- -------- -------- 1995....................................................... $14,054,000 $ 8,000 $128,000 1994....................................................... 28,384,000 228,000 402,000 1993....................................................... 34,341,000 658,000 21,000
Securities with a book value of $20,816,000 and $10,948,000 at December 31, 1995 and 1994, respectively, were pledged to secure public deposits and for other purposes as required by law. There were no investment obligations of state and political subdivisions that were payable from or secured by the same source of revenue or taxing authority that exceeded 10% of consolidated shareholders' equity at December 31, 1995 or 1994. F-10 93 INDEPENDENT BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 5 -- SECURITIES -- CONTINUED During November 1995, the Financial Accounting Standards Board issued a "Guide to Implementation of Statement #115 on Accounting for Certain Investment in Debt and Equity Securities." This guide allowed for a one-time change in the classification of securities pursuant to SFAS #115 as of the date of the implementation guide, but no later than December 31, 1995. As a result, the Banks made a transfer of $52,601,000 to securities available for sale. NOTE 6 -- LOANS An analysis of the allowance for loan losses for the years ended December 31 follows:
1995 1994 1993 ---------- ---------- ---------- Balance at beginning of period........................... $5,054,000 $5,053,000 $4,023,000 Allowance on loans acquired............................ 756,000 Provision charged to operating expense................. 636,000 473,000 657,000 Recoveries credited to allowance....................... 265,000 399,000 331,000 Loans charged against allowance........................ (712,000) (871,000) (714,000) ---------- ---------- ---------- Balance at end of period................................. $5,243,000 $5,054,000 $5,053,000 ========== ========== ==========
Loans are presented net of deferred income of $1,434,000 at December 31, 1995, and $1,325,000 at December 31, 1994. Loans on non-accrual status, 90 days or more past due and still accruing interest, or restructured amounted to $2,560,000, $2,834,000 and $3,213,000 at December 31, 1995, 1994 and 1993, respectively. If these loans had continued to accrue interest in accordance with their original terms, approximately $263,000, $259,000, and $261,000 of interest income would have been realized in 1995, 1994 and 1993, respectively. Interest income accrued on these loans was approximately $64,000, $102,000 and $143,000 in 1995, 1994 and 1993, respectively. Impaired loans totaled approximately $3,200,000 at December 31, 1995. In addition to certain non-performing loans, other than homogeneous residential mortgage and installment loans, impaired loans include commercial and agricultural loans totaling $1,800,000 that have been separately identified as impaired. The Banks' average investment in impaired loans approximated $2,300,000 in 1995. Cash receipts on impaired loans on non-accrual status are generally applied to the principal balance. Interest income recognized on impaired loans in 1995 was approximately $70,000. Certain impaired loans with a balance of approximately $700,000 had specific allocations of the allowance for loan losses calculated in accordance with SFAS #114 totaling approximately $250,000 at December 31, 1995. As a result of the implementation of SFAS #114, certain loans that had previously been identified as in-substance foreclosed and classified as other real estate have been transferred to loans at December 31, 1995. At December 31, 1995, 1994 and 1993, the Banks serviced loans totaling approximately $124,000,000, $103,500,000 and $78,000,000, respectively, for the benefit of third parties. F-11 94 INDEPENDENT BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 7 -- PROPERTY AND EQUIPMENT A summary of property and equipment at December 31 follows:
1995 1994 ----------- ----------- Land............................................................... $ 1,662,000 $ 1,409,000 Buildings.......................................................... 9,554,000 8,956,000 Equipment.......................................................... 7,988,000 7,177,000 ----------- ----------- 19,204,000 17,542,000 Accumulated depreciation and amortization.......................... (9,273,000) (8,049,000) ----------- ----------- Property and equipment, net................................... $ 9,931,000 $ 9,493,000 =========== ===========
NOTE 8 -- DEPOSITS A summary of interest expense on deposits for the years ended December 31 follows:
1995 1994 1993 ----------- ----------- ----------- Savings and NOW....................................... $ 5,515,000 $ 4,819,000 $ 4,887,000 Time deposits under $100,000.......................... 6,072,000 5,705,000 6,508,000 Time deposits of $100,000 or more..................... 883,000 568,000 632,000 ----------- ----------- ----------- Total............................................ $12,470,000 $11,092,000 $12,027,000 =========== =========== ===========
Aggregate time certificates of deposit and other time deposits in denominations of $100,000 or more amounted to $19,497,000, $11,231,000, and $14,124,000 at December 31, 1995, 1994 and 1993, respectively. NOTE 9 -- OTHER BORROWINGS A summary of other borrowings at December 31 follows:
1995 1994 ------------ ----------- Advances from Federal Home Loan Bank.............................. $103,000,000 $40,000,000 U.S. Treasury demand notes........................................ 1,223,000 1,985,000 Repurchase agreements............................................. 6,666,000 5,752,000 Other............................................................. 5,000 4,000 ------------ ----------- Total........................................................ $110,894,000 $47,741,000 ============ ===========
Advances from the Federal Home Loan Bank ("FHLB") at December 31, 1995 and 1994, are secured by the Banks' unencumbered qualifying mortgage loans as well as U.S. Treasury and government agency F-12 95 INDEPENDENT BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 9 -- OTHER BORROWINGS -- CONTINUED securities equal to at least 170% of outstanding advances. Maturities and weighted average interest rates are as follows:
1995 1994 -------------------- ------------------- AMOUNT RATE AMOUNT RATE ------------ ---- ----------- ---- Fixed rate advances 1995............................................. $ 3,000,000 6.90% 1996............................................. $ 27,000,000 5.61% 1997............................................. 34,000,000 6.01 1998............................................. 16,000,000 5.94 ------------ ---- ----------- ---- Total fixed rate advances..................... 77,000,000 5.86 3,000,000 6.90 ------------ ---- ----------- ---- Variable rate advances 1995............................................. 37,000,000 6.15 1996............................................. 15,000,000 5.76 1997............................................. 4,000,000 5.86 2000............................................. 7,000,000 6.66 ------------ ---- ----------- ---- Total variable rate advances.................. 26,000,000 6.02 37,000,000 6.15 ------------ ---- ----------- ---- Total advances................................ $103,000,000 5.90% $40,000,000 6.21% ============ ==== =========== ====
Interest expense on advances amounted to $3,836,000, $761,000 and $55,000 for the years ending December 31, 1995, 1994 and 1993, respectively. As members of the FHLB system, the Banks must own FHLB stock equal to the greater of 1.0% of the unpaid principal balances of residential mortgage loans, 0.3% of its total assets, or 5.0% of its outstanding advances. At December 31, 1995, the Banks are in compliance with the FHLB stock ownership requirements. The Company also has a $3,000,000 revolving credit agreement secured by the capital stock of one of the Banks. At December 31, 1995, no amounts were outstanding on this revolving credit agreement. NOTE 10 -- FEDERAL INCOME TAX The composition of federal income tax expense for the years ended December 31 follows:
1995 1994 1993 ----------- ---------- ---------- Current................................................. $ 3,908,000 $1,855,000 $2,178,000 Deferred................................................ (1,208,000) 474,000 (13,000) ----------- ---------- ---------- Federal income tax expense......................... $ 2,700,000 $2,329,000 $2,165,000 =========== ========== ==========
A reconciliation of federal income tax expense to the amount computed by applying the statutory federal income tax rate of 34% to income before federal income tax for the years ended December 31 follows:
1995 1994 1993 ---------- ---------- ---------- Statutory rate applied to income before federal income tax.................................................... $3,233,000 $2,842,000 $2,642,000 Tax-exempt interest income............................... (587,000) (586,000) (584,000) Amortization of goodwill................................. 54,000 58,000 49,000 Other, net............................................... 15,000 58,000 ---------- ---------- ---------- Federal income tax expense.......................... $2,700,000 $2,329,000 $2,165,000 ========== ========== ==========
F-13 96 INDEPENDENT BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 10 -- FEDERAL INCOME TAX -- CONTINUED The deferred federal income tax benefit of $1,208,000 in 1995, expense of $474,000 in 1994, and benefit of $13,000 in 1993, resulted from the tax effects of temporary differences. There was no impact for changes in tax laws and rates or changes in the valuation allowance for deferred tax assets. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 follow:
1995 1994 ---------- ---------- Deferred tax assets Allowance for loan losses.......................................... $ 961,000 $ 821,000 Deferred compensation.............................................. 598,000 481,000 Deferred loan fees................................................. 486,000 458,000 Deferred credit life premiums...................................... 145,000 136,000 Mortgage servicing fees............................................ 112,000 128,000 Unrealized loss on securities available for sale................... 1,092,000 Other.............................................................. 443,000 205,000 ---------- ---------- Gross deferred tax assets....................................... 2,745,000 3,321,000 ---------- ---------- Deferred tax liabilities Unrealized gain on securities available for sale................... 368,000 Purchase premiums.................................................. 134,000 177,000 Securities and loans marked-to-market for tax purposes............. 622,000 Other.............................................................. 27,000 ---------- ---------- Gross deferred tax liabilities.................................. 502,000 826,000 ---------- ---------- Net deferred tax assets......................................... $2,243,000 $2,495,000 ========== ==========
The Company's aggregate income subject to federal income tax for the three years ended December 31, 1995, totaled approximately $25,600,000. Consequently, Management believes that at December 31, 1995, it is more likely than not that the benefit of the gross deferred tax assets of $2,745,000 will be realized and no valuation allowance is deemed necessary as of December 31, 1995. NOTE 11 -- EMPLOYEE BENEFIT PLANS During 1992, the Company's shareholders approved the adoption of stock option plans for certain employees of the Company and the Banks and for non-employee directors of the Company. An aggregate of 137,800 shares of common stock has been authorized for issuance under the plans. Options granted under these plans are exercisable not earlier than one year after the date of grant, at a price equal to the fair market value of the common stock on the date of grant, and expire five years after the date of grant. F-14 97 INDEPENDENT BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 11 -- EMPLOYEE BENEFIT PLANS -- CONTINUED The following table summarizes outstanding grants and stock option transactions:
NUMBER AVERAGE OF EXERCISE SHARES PRICE ------ -------- Outstanding at December 31, 1992......................................... 22,050 $13.95 Granted................................................................ 22,050 18.31 Forfeited.............................................................. (1,103) 14.29 ------ ------ Outstanding at December 31, 1993......................................... 42,997 16.18 Granted................................................................ 23,153 18.14 Exercised.............................................................. (1,103) 14.29 ------ ------ Outstanding at December 31, 1994......................................... 65,047 16.91 Granted................................................................ 26,460 22.57 Exercised.............................................................. (8,435) 16.23 Forfeited.............................................................. (1,103) 22.22 ------ ------ Outstanding at December 31, 1995......................................... 81,969 $18.73 ====== ======
The Company has a 401(k) and an employee stock ownership plan covering substantially all full-time employees of the Company and the Banks. The Company matches employee contributions to the 401(k) up to a maximum of 3% of participating employees' eligible wages. Contributions to the employee stock ownership plan are determined annually and require approval of the Company's Board of Directors. For the years ended December 31, 1995, 1994 and 1993, $704,000, $365,000 and $452,000 respectively, was expensed for these retirement plans. Officers of the Company and the Banks participate in various performance-based compensation plans. The 1988 Incentive Share Grant Plan provides that the Board of Directors, at its sole discretion, may award restricted shares of common stock to the participants in the Management Incentive Compensation Plan in lieu of cash bonuses. The market value of such incentive shares at the date of grant must equal twice the amount of the cash incentive otherwise payable. Shares of common stock issued pursuant to the Incentive Share Grant Plan vest over four years. For the years ended December 31, 1995, 1994 and 1993, amounts expensed for all incentive plans totaled $876,000, $633,000, and $784,000, respectively. The Company also provides certain health care and life insurance programs to substantially all full-time employees. These insurance programs are available to retired employees at their expense. Effective January 1, 1996, the Company will adopt Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", ("SFAS #123"). SFAS #123 encourages companies to adopt a fair value method of accounting for stock compensation plans. Those companies not adopting a fair value method will be required to make pro-forma disclosures of net income and earnings per share as if they had adopted the fair value accounting method. Management anticipates the Company will elect the pro-forma disclosure method. NOTE 12 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK In the normal course of business, the Banks enter into financial instruments with off-balance sheet risk to meet the financing needs of customers or to reduce exposure to fluctuations in interest rates. These financial instruments may include commitments to extend credit, standby letters of credit and interest rate swaps. There were no interest rate swaps in 1995, 1994 and 1993. Financial instruments involve varying degrees of credit and interest rate risk in excess of amounts reflected in the consolidated balance sheets. Exposure to F-15 98 INDEPENDENT BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 12 -- FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK -- CONTINUED credit risk in the event of non-performance by the counterparties to the financial instruments for loan commitments to extend credit and letters of credit is represented by the contractual amounts of those instruments. Management does not, however, anticipate material losses as a result of these financial instruments. A summary of financial instruments with off-balance sheet risk at December 31 follows:
1995 1994 ----------- ----------- Financial instruments whose risk is represented by contract amounts Commitments to extend credit..................................... $50,821,000 $34,266,000 Standby letters of credit........................................ 2,427,000 2,858,000
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and generally require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the commitment amounts do not represent future cash requirements. Commitments are issued subject to similar underwriting standards, including collateral requirements, as are generally involved in the extension of credit facilities. Standby letters of credit are written conditional commitments issued by the Banks to guarantee the performance of a customer to a third party, primarily public and private borrowing arrangements. Standby letters of credit generally extend for periods of less than one year. The credit risk involved in such transactions is essentially the same as that involved in extending loan facilities and, accordingly, standby letters of credit are issued subject to similar underwriting standards, including collateral requirements, as are generally involved in the extension of credit facilities. NOTE 13 -- RELATED PARTY TRANSACTIONS Certain directors and executive officers of the Company and the Banks, including companies in which they are officers or have significant ownership, were loan customers of the Banks during 1995 and 1994. A summary of loans to directors and executive officers whose borrowing relationship exceeds $60,000, and to entities in which they own a 10% or more voting interest for the years ended December 31 follows:
1995 1994 ----------- ----------- Balance at beginning of period..................................... $ 5,322,000 $ 4,765,000 New loans and advances........................................... 3,265,000 7,145,000 Repayments....................................................... (3,900,000) (6,588,000) ----------- ----------- Balance at end of period........................................... $ 4,687,000 $ 5,322,000 =========== ===========
F-16 99 INDEPENDENT BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 14 -- OTHER OPERATING EXPENSES Other operating expenses for the years ended December 31, follow:
1995 1994 1993 ---------- ---------- ---------- Loan and collection...................................... $1,030,000 $ 626,000 $ 724,000 Computer processing...................................... 818,000 786,000 674,000 Communications........................................... 791,000 728,000 614,000 Supplies................................................. 561,000 498,000 423,000 State taxes.............................................. 537,000 496,000 435,000 Deposit insurance........................................ 499,000 966,000 858,000 Legal and professional................................... 307,000 406,000 394,000 Other.................................................... 2,103,000 1,795,000 1,892,000 ---------- ---------- ---------- Total............................................... $6,646,000 $6,301,000 $6,014,000 ========== ========== ==========
NOTE 15 -- UNDISTRIBUTED INCOME AND DIVIDEND LIMITATIONS OF SUBSIDIARIES Capital guidelines adopted by Federal and State regulatory agencies and restrictions imposed by law limit the amount of cash dividends the Banks can pay to the Company. At December 31, 1995, using the most restrictive of these conditions for each Bank, the aggregate cash dividends that the Banks can pay the Company without prior approval is approximately $18,930,000. It is not the intent of Management to have dividends paid in amounts which would reduce the capital of the Banks to levels below those which are considered prudent by management and in accordance with guidelines of regulatory authorities. NOTE 16 -- FAIR VALUES OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments" requires that the Company disclose estimated fair values for its financial instruments. Many of the Company's financial instruments lack an available trading market. Further, it is the Company's general practice and intent to hold the majority of its financial instruments to maturity. Significant estimates and assumptions were used to determine the fair value of financial instruments. These estimates are subjective in nature, involving uncertainties and matters of judgment, and therefore, fair values cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Estimated fair values have been determined using available data and an estimation methodology that is considered suitable for each category of financial instrument. For assets and liabilities with floating interest rates which reprice frequently and without significant credit risk, it is presumed that estimated fair values approximate the recorded book balances. Financial instrument assets actively traded in a secondary market, such as securities, have been valued using quoted market prices while recorded book balances have been used for cash and due from banks and federal funds sold. The fair value of loans is calculated by discounting estimated future cash flows using estimated market discount rates that reflect credit and interest rate risk inherent in the loan. Financial instruments with stated maturities, such as certificates of deposit, have been valued based on the discounted value of contractual cash flows using a discount rate approximating current market rates for liabilities with similar remaining maturities. Financial instrument liabilities with no stated maturities, such as demand deposits, savings, NOW and money market accounts, have a fair value equal to the amount payable on demand. F-17 100 INDEPENDENT BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 16 -- FAIR VALUES OF FINANCIAL INSTRUMENTS -- CONTINUED The estimated fair values and recorded book balances at December 31 follow:
1995 1994 --------------------- --------------------- ESTIMATED RECORDED ESTIMATED RECORDED FAIR BOOK FAIR BOOK VALUE BALANCE VALUE BALANCE --------- -------- --------- -------- (IN THOUSANDS) ASSETS Cash and due from banks........................... $ 17,200 $ 17,200 $ 22,900 $ 22,900 Federal funds sold................................ 900 900 Securities available for sale..................... 87,600 87,600 52,800 52,800 Securities held to maturity....................... 29,000 27,900 77,500 77,700 Net loans and loans held for sale................. 432,000 428,800 330,700 337,600 LIABILITIES Deposits with no stated maturities................ $ 261,500 $261,500 $ 275,800 $275,800 Deposits with stated maturities................... 150,300 150,100 132,500 133,700 Other borrowings.................................. 124,400 124,300 61,600 61,600
The fair values for commitments to extend credit and standby letters of credit are estimated to approximate their aggregate book balance. Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale the entire holdings of a particular financial instrument. Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business, the value of future earnings attributable to off-balance sheet activities and the value of assets and liabilities that are not considered financial instruments. Fair value estimates for deposit accounts do not include the value of the substantial core deposit intangible asset resulting from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market. F-18 101 INDEPENDENT BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 17 -- INDEPENDENT BANK CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION Presented below are condensed financial statements for the parent company. CONDENSED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, -------------------------- 1995 1994 ----------- ----------- ASSETS Cash and due from banks.......................................... $ 2,761,000 $ 1,865,000 Investment in subsidiaries....................................... 44,212,000 38,058,000 Other assets..................................................... 1,713,000 1,667,000 ----------- ----------- Total Assets.................................................. $48,686,000 $41,590,000 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Other liabilities................................................ $ 1,661,000 $ 1,279,000 Shareholders' equity............................................. 47,025,000 40,311,000 ----------- ----------- Total Liabilities and Shareholders' Equity.................... $48,686,000 $41,590,000 =========== ===========
CONDENSED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, -------------------------------------- 1995 1994 1993 ---------- ---------- ---------- OPERATING INCOME Dividends from subsidiaries............................ $4,500,000 $5,560,000 $5,426,000 Management fees from subsidiaries and other income..... 4,248,000 4,028,000 3,362,000 ---------- ---------- ---------- Total Operating Income.............................. 8,748,000 9,588,000 8,788,000 ---------- ---------- ---------- OPERATING EXPENSES Interest expense....................................... 120,000 34,000 Administrative and other expenses...................... 5,226,000 4,849,000 4,387,000 ---------- ---------- ---------- Total Operating Expenses............................ 5,226,000 4,969,000 4,421,000 ---------- ---------- ---------- Income Before Federal Income Tax and Undistributed Net Income of Subsidiaries........................ 3,522,000 4,619,000 4,367,000 Federal income tax credit................................ 320,000 310,000 313,000 ---------- ---------- ---------- Income Before Equity in Undistributed Net Income of Subsidiaries...................................... 3,842,000 4,929,000 4,680,000 Equity in undistributed net income of subsidiaries....... 2,968,000 1,102,000 926,000 ---------- ---------- ---------- Net Income.......................................... $6,810,000 $6,031,000 $5,606,000 ========== ========== ==========
F-19 102 INDEPENDENT BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 17 -- INDEPENDENT BANK CORPORATION (PARENT COMPANY ONLY) FINANCIAL INFORMATION -- CONTINUED CONDENSED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, --------------------------------------- 1995 1994 1993 ----------- ----------- ----------- Net Income.............................................. $ 6,810,000 $ 6,031,000 $ 5,606,000 ----------- ----------- ----------- ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH FROM OPERATING ACTIVITIES Depreciation, amortization of intangible assets and premiums, and accretion of discounts on securities and loans.......................................... 297,000 286,000 215,000 (Increase) decrease in other assets................... (604,000) 547,000 (332,000) Increase in other liabilities......................... 599,000 298,000 560,000 Equity in undistributed net income of subsidiaries.... (2,968,000) (1,102,000) (926,000) ----------- ----------- ----------- Total Adjustments................................ (2,676,000) 29,000 (483,000) ----------- ----------- ----------- Net Cash from Operating Activities............... 4,134,000 6,060,000 5,123,000 ----------- ----------- ----------- CASH FLOW FROM INVESTING ACTIVITIES Purchase of securities available for sale............. (241,000) (233,000) Capital expenditures.................................. (127,000) (142,000) (594,000) Investment in subsidiaries............................ (7,214,000) Proceeds from sale of property and equipment.......... 36,000 13,000 ----------- ----------- ----------- Net Cash from Investing Activities............... (91,000) (383,000) (8,028,000) ----------- ----------- ----------- CASH FLOW FROM FINANCING ACTIVITIES Proceeds from issuance of long-term borrowings........ 3,000,000 Repayment of debt..................................... (2,750,000) (250,000) Dividends paid........................................ (2,392,000) (1,926,000) (1,380,000) Proceeds from issuance of common stock................ 138,000 16,000 Repurchase of common stock............................ (893,000) (924,000) ----------- ----------- ----------- Net Cash from Financing Activities............... (3,147,000) (5,584,000) 1,370,000 ----------- ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents................................... 896,000 93,000 (1,535,000) Cash and Cash Equivalents at Beginning of Period........ 1,865,000 1,772,000 3,307,000 ----------- ----------- ----------- Cash and Cash Equivalents at End of Period....... $ 2,761,000 $ 1,865,000 $ 1,772,000 =========== =========== ===========
F-20 103 INDEPENDENT BANK CORPORATION INDEPENDENT AUDITOR'S REPORT BOARD OF DIRECTORS AND SHAREHOLDERS INDEPENDENT BANK CORPORATION IONIA, MICHIGAN We have audited the accompanying consolidated statements of financial condition of Independent Bank Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express our opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Independent Bank Corporation and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in note 1 to the consolidated financial statements, the Company changed its method of accounting for income taxes in 1993 to adopt the provisions of Financial Accounting Standards Board's Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." As discussed in note 1, the Company changed its method of accounting for investments to adopt the provisions of Financial Accounting Standards Board's SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities" at January 1, 1994. As discussed in note 1, the Company changed its method of accounting for impaired loans in 1995 to adopt the provisions of Financial Accounting Standards Board's SFAS No. 114, "Accounting by Creditors for Impairment of a Loan", as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures." KPMG Peat Marwick LLP Lansing, Michigan February 1, 1996 F-21 104 INDEPENDENT BANK CORPORATION INTERIM CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996 ------------- (UNAUDITED) ASSETS Cash and due from banks....................................................... $ 26,601,000 Securities available for sale................................................. 122,487,000 Securities held to maturity (fair value of $27,698,000 at September 30, 1996)....................................................................... 26,874,000 Federal Home Loan Bank stock, at cost......................................... 10,198,000 Loans held for sale........................................................... 10,389,000 Loans Commercial and agricultural................................................. 141,747,000 Real estate mortgage........................................................ 310,079,000 Installment................................................................. 113,592,000 ------------ Total Loans....................................................... 565,418,000 Allowance for loan losses................................................... (6,720,000) ------------ Net Loans......................................................... 558,698,000 Property and equipment, net................................................... 16,624,000 Accrued income and other assets............................................... 21,281,000 ------------ Total Assets...................................................... $ 793,152,000 ============ LIABILITIES AND SHAREHOLDERS' EQUITY Deposits Non-interest bearing........................................................ $ 68,685,000 Savings and NOW............................................................. 263,841,000 Time........................................................................ 209,255,000 ------------ Total Deposits.................................................... 541,781,000 Federal funds purchased....................................................... 37,100,000 Other borrowings.............................................................. 153,859,000 Accrued expenses and other liabilities........................................ 9,679,000 ------------ Total Liabilities................................................. 742,419,000 ------------ Shareholders' Equity Preferred stock, no par value -- 200,000 shares authorized; none outstanding Common stock, $1.00 par value -- 14,000,000 shares authorized; issued and outstanding: 2,861,399 shares at September 30, 1996...................... 2,861,000 Capital surplus............................................................. 24,256,000 Retained earnings........................................................... 23,447,000 Net unrealized gain on securities available for sale, net of related tax effect................................................................... 169,000 ------------ Total Shareholders' Equity........................................ 50,733,000 ------------ Total Liabilities and Shareholders' Equity..................... $ 793,152,000 ============
See notes to interim consolidated financial statements. F-22 105 INDEPENDENT BANK CORPORATION INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1996 1995 ----------- ----------- (UNAUDITED) INTEREST INCOME Interest and fees on loans....................................... $35,587,000 $27,370,000 Securities Taxable....................................................... 4,873,000 4,572,000 Tax-exempt.................................................... 1,502,000 1,328,000 Other investments................................................ 636,000 264,000 ----------- ----------- Total Interest Income....................................... 42,598,000 33,534,000 ----------- ----------- INTEREST EXPENSE Deposits......................................................... 11,598,000 9,193,000 Other borrowings................................................. 5,950,000 3,688,000 ----------- ----------- Total Interest Expense...................................... 17,548,000 12,881,000 ----------- ----------- Net Interest Income......................................... 25,050,000 20,653,000 Provision for loan losses.......................................... 942,000 477,000 ----------- ----------- Net Interest Income After Provision for Loan Losses................................ 24,108,000 20,176,000 ----------- ----------- NON-INTEREST INCOME Service charges on deposit accounts.............................. 1,641,000 1,439,000 Net gains (losses) on asset sales Real estate mortgage loans.................................... 1,251,000 405,000 Securities.................................................... (130,000) (110,000) Other income..................................................... 1,219,000 922,000 ----------- ----------- Total Non-interest Income................................... 3,981,000 2,656,000 ----------- ----------- NON-INTEREST EXPENSE Salaries and employee benefits................................... 11,404,000 8,903,000 Occupancy, net................................................... 1,458,000 1,135,000 Furniture and fixtures........................................... 1,337,000 975,000 Other expenses................................................... 5,605,000 4,884,000 ----------- ----------- Total Non-interest Expense.................................. 19,804,000 15,897,000 ----------- ----------- Income Before Federal Income Tax............................ 8,285,000 6,935,000 Federal income tax expense......................................... 2,466,000 1,948,000 ----------- ----------- Net Income.................................................. $ 5,819,000 $ 4,987,000 =========== =========== Net income per common share........................................ $2.02 $1.74 =========== =========== Cash dividends declared per common share........................... $0.74 $0.66 =========== ===========
See notes to interim consolidated financial statements. F-23 106 INDEPENDENT BANK CORPORATION INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------- 1996 1995 ------------ ------------ (UNAUDITED) Net Income....................................................... $ 5,819,000 $ 4,987,000 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH FROM OPERATING ACTIVITIES Proceeds from sales of loans held for sale..................... 78,515,000 33,439,000 Disbursements for loans held for sale.......................... (69,135,000) (31,883,000) Provision for loan losses...................................... 942,000 477,000 Deferred loan fees............................................. 158,000 23,000 Depreciation, amortization of intangible assets and premiums and accretion of discounts on investment securities and loans....................................................... 1,899,000 1,679,000 Net losses on sales of securities.............................. 130,000 110,000 Net gains on sales of real estate mortgage loans............... (1,251,000) (405,000) Increase in accrued income and other assets.................... (7,784,000) (751,000) Increase in accrued expenses and other liabilities............. 1,114,000 1,993,000 ------------ ------------ Total Adjustments........................................... 4,588,000 4,682,000 ------------ ------------ Net Cash from Operating Activities........................ 10,407,000 9,669,000 ------------ ------------ CASH FLOW FROM INVESTING ACTIVITIES Proceeds from sales of securities available for sale........... 15,907,000 13,152,000 Proceeds from maturities of securities held to maturity........ 8,898,000 10,925,000 Principal payments received on securities available for sale... 6,785,000 863,000 Principal payments received on securities held to maturity..... 601,000 3,867,000 Purchases of securities available for sale..................... (30,839,000) Purchases of securities held to maturity....................... (295,000) (15,715,000) Portfolio loans made to customers net of principal payments received.................................................... (63,355,000) (75,788,000) Acquisition of branch office, less cash received............... 13,949,000 Acquisition of bank, less cash received........................ 9,478,000 Capital expenditures........................................... (2,607,000) (1,133,000) ------------ ------------ Net Cash from Investing Activities........................ (55,427,000) (49,880,000) ------------ ------------ CASH FLOW FROM FINANCING ACTIVITIES Net decrease in total deposits................................. (1,378,000) (15,371,000) Net increase in short-term borrowings.......................... 20,165,000 6,663,000 Proceeds from Federal Home Loan Bank advances.................. 45,000,000 76,000,000 Payments of Federal Home Loan Bank advances.................... (17,000,000) (30,000,000) Proceeds from issuance of long-term borrowings................. 10,000,000 Retirement of debt............................................. (500,000) Dividends paid................................................. (1,933,000) (1,758,000) Proceeds from issuance of common stock......................... 59,000 81,000 Repurchase of common stock..................................... (755,000) ------------ ------------ Net Cash from Financing Activities........................ 54,413,000 34,860,000 ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents...... 9,393,000 (5,351,000) Cash and Cash Equivalents at Beginning of Period................. 17,208,000 23,719,000 ------------ ------------ Cash and Cash Equivalents at End of Period................ $ 26,601,000 $ 18,368,000 ============ ============ Cash paid during the period for: Interest....................................................... $ 16,935,000 $ 12,530,000 Income taxes................................................... 2,990,000 2,150,000 Transfer of loans to other real estate........................... 808,000 367,000
See notes to interim consolidated financial statements. F-24 107 INDEPENDENT BANK CORPORATION INTERIM CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1996 1995 ----------- ----------- (UNAUDITED) Balance at beginning of period..................................... $47,025,000 $40,311,000 Net income....................................................... 5,819,000 4,987,000 Cash dividends declared.......................................... (2,125,000) (1,861,000) Issuance of common stock......................................... 559,000 430,000 Repurchase of common stock....................................... (755,000) Net change in unrealized gain on securities available for sale, net of related tax effect..................................... (545,000) 1,794,000 ----------- ----------- Balance at end of period........................................... $50,733,000 $44,906,000 =========== ===========
See notes to interim consolidated financial statements. F-25 108 INDEPENDENT BANK CORPORATION NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. In the opinion of management of the Company, the accompanying unaudited consolidated financial statements contain all the adjustments (consisting only of normal recurring accruals) necessary to present fairly the consolidated financial condition of the Company as of September 30, 1996 and the results of operations for the nine-month periods ended September 30, 1996 and 1995. 2. Management's assessment of the allowance for loan losses is based on an evaluation of the loan portfolio, recent loss experience, current economic conditions and other pertinent factors. Loans on non-accrual status, past due more than 90 days, or restructured amounted to $3,451,000 at September 30, 1996. (See Management's Discussion and Analysis of Financial Condition and Results of Operations). 3. The provision for income taxes represents federal income tax expense calculated using annualized rates on taxable income generated during the respective periods. 4. The unaudited pro forma combined results for the Company and NBC set forth below are presented as if the NBC Acquisition had occurred at the beginning of the periods presented.
NINE MONTHS ENDED SEPTEMBER 30, -------------------------- 1996 1995 ----------- ----------- Revenues, net....................................... $51,700,000 $45,800,000 Net income.......................................... 5,600,000 4,600,000 Net income per common share......................... $1.93 $1.60
5. The results of operations for the nine-month period ended September 30, 1996, are not necessarily indicative of the results to be expected for the full year. 6. The Company adopted Statement of Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing Rights," effective January 1, 1996. (See Management's Discussion and Analysis of Financial Condition and Results of Operations). F-26 109 REPORT OF INDEPENDENT ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS NORTH BANK CORPORATION HALE, MICHIGAN We have audited the accompanying consolidated balance sheets of North Bank Corporation as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of North Bank Corporation as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 2 to the consolidated financial statements, the Corporation changed its methods of accounting for impaired loans in 1995 and investment securities and income taxes in 1993 to conform to new accounting standards. The change in accounting for income taxes was made retroactively to January 1, 1991. Crowe, Chizek and Company LLP Grand Rapids, Michigan March 8, 1996 F-27 110 NORTH BANK CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND 1994 (DOLLARS IN THOUSANDS)
1995 1994 -------- -------- ASSETS Cash and due from banks (Note 3)........................................ $ 6,421 $ 8,121 Federal funds sold...................................................... 200 -------- -------- Total cash and cash equivalents.................................... 6,621 8,121 Securities available for sale (Note 4).................................. 48,665 26,503 Securities held to maturity (estimated fair value of $28,755) (Note 4).................................................................... 30,584 -------- -------- Total securities................................................... 48,665 57,087 Total loans (Note 5).................................................... 90,331 81,833 Less allowance for loan losses (Note 6)................................. (988) (949) -------- -------- Net Loans.......................................................... 89,343 80,884 Premises and equipment -- net (Note 7).................................. 5,580 6,047 Accrued interest receivable............................................. 1,102 1,010 Other real estate....................................................... 118 628 Other assets............................................................ 1,287 2,496 -------- -------- Total assets....................................................... $152,716 $156,273 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Deposits: Noninterest-bearing demand......................................... $ 17,872 $ 17,189 Interest-bearing transaction accounts.............................. 19,858 19,292 Savings............................................................ 38,444 40,157 Time (Note 8)...................................................... 55,591 47,127 -------- -------- Total deposits................................................ 131,765 123,765 Long-term borrowings (Note 10)........................................ 9,000 19,728 Federal funds purchased............................................... 1,100 Accrued interest payable.............................................. 516 496 Other liabilities (Note 11)........................................... 789 1,661 -------- -------- Total liabilities.................................................. 142,070 146,750 Shareholders' Equity Common stock, no par value, 1,500,000 shares authorized; 482,040 and 481,478 issued and outstanding in 1995 and 1994, respectively...... 1,207 1,204 Surplus............................................................... 5,635 5,629 Retained earnings..................................................... 3,841 4,159 Net unrealized appreciation (depreciation) on available for sale securities, net of tax of $19 in 1995 and $585 in 1994 (Note 4).... (37) (1,136) Minimum pension liability adjustment, net of tax of $171 in 1994 (Note 11)................................................................ (333) -------- -------- Total shareholders' equity......................................... 10,646 9,523 -------- -------- Total liabilities and shareholders' equity.................... $152,716 $156,273 ======== ========
See accompanying notes to consolidated financial statements. F-28 111 NORTH BANK CORPORATION CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 1994 1993 ------- ------ ------ INTEREST INCOME Loans, including fees............................................ $ 7,765 $6,539 $6,406 Securities Taxable....................................................... 3,002 2,372 2,715 Tax-exempt.................................................... 342 584 814 Federal funds sold............................................... 124 70 62 ------- ------ ------ Total interest income.................................... 11,233 9,565 9,997 INTEREST EXPENSE Deposits......................................................... 4,401 3,127 3,917 Borrowings....................................................... 983 803 226 ------- ------ ------ Total interest expense................................... 5,384 3,930 4,143 ------- ------ ------ Net interest income...................................... 5,849 5,635 5,854 Provision for loan losses (Note 6)................................. (307) (180) (150) ------- ------ ------ Net interest income after provision for loan losses................ 5,542 5,455 5,704 Other operating income Service charges on deposit accounts.............................. 404 422 394 Net gain (loss) on sales of securities........................... (111) (374) 1,201 Gain on sales of loans........................................... 424 116 441 Gain on sale of mortgage servicing rights........................ 124 Other operating income........................................... 361 353 420 ------- ------ ------ Total other operating income............................. 1,202 517 2,456 Other operating expenses Salaries and employee benefits (Note 11)......................... 2,738 2,745 3,076 Pension settlement (Note 11)..................................... 774 Net occupancy.................................................... 468 407 373 Equipment........................................................ 740 651 581 Legal fees....................................................... 132 109 131 FDIC premium..................................................... 144 274 304 Other operating expense.......................................... 1,898 1,535 2,004 ------- ------ ------ Total other operating expense............................ 6,894 5,721 6,469 ------- ------ ------ Income (loss) before federal income taxes.......................... (150) 251 1,691 Federal income tax expense (benefit) (Note 9)...................... (121) (82) 260 ------- ------ ------ Net income (loss)........................................ $ (29) $333 $1,431 ======= ====== ====== Net income (loss) per common share (Note 2)........................ $(.06) $ .70 $ 2.97 ======= ====== ======
See accompanying notes to consolidated financial statements. F-29 112 NORTH BANK CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NET UNREALIZED APPRECIATION (DEPRECIATION) MINIMUM ON SECURITIES PENSION COMMON RETAINED AVAILABLE FOR LIABILITY STOCK SURPLUS EARNINGS SALE ADJUSTMENT TOTAL ------ ------- -------- -------------- ---------- ------- BALANCE -- JANUARY 1, 1993.......... $1,223 $ 5,757 $2,949 $ 9,929 Net income, 1993.................... 1,431 1,431 Cash dividends ($.55 per share)..... (266) (266) Retirement of shares................ (19 ) (128) (147) Net unrealized appreciation on securities available for sale..... $ 53 53 ------ ------ ------ ------- ------- BALANCE -- DECEMBER 31, 1993........ 1,204 5,629 4,114 53 11,000 Net income, 1994.................... 333 333 Cash dividends ($.60 per share)..... (288) (288) Net change in unrealized appreciation (depreciation) on securities available for sale..... (1,189) (1,189) Minimum pension liability adjustment (Note 11)......................... $ (333) (333) ------ ------ ------ ------- ----- ------- BALANCE -- DECEMBER 31, 1994........ 1,204 5,629 4,159 (1,136) (333) 9,523 Net loss, 1995...................... (29) (29) Cash dividends ($.60 per share)..... (289) (289) Exercise of options (Note 11)....... 3 6 9 Net change in unrealized appreciation (depreciation) on securities available for sale..... 1,099 1,099 Minimum pension liability adjustment (Note 11)......................... 333 333 ------ ------ ------ ------- ----- ------- BALANCE -- DECEMBER 31, 1995........ $1,207 $ 5,635 $3,841 $ (37) $ 0 $10,646 ====== ====== ====== ======= ===== =======
See accompanying notes to consolidated financial statements. F-30 113 NORTH BANK CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (DOLLARS IN THOUSANDS)
1995 1994 1993 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss).................................................... $ (29) $ 333 $ 1,431 Adjustments to reconcile net income (loss) to net cash from operating activities: Depreciation....................................................... 534 613 546 Net amortization................................................... 86 87 76 Provision for loan losses.......................................... 307 180 150 (Gain) loss on sales of other real estate.......................... (76) 5 Gain on sales of loans............................................. (424) (116) (441) Origination of loans for sale...................................... (24,592) (6,120) (18,765) Proceeds from sales of loans originated for sale................... 23,926 6,297 19,623 Gain on sale of mortgage servicing rights.......................... (124) Net (gain) loss on sales of securities............................. 111 374 (1,201) Change in assets and liabilities Securities available for sale.................................... (2,169) Deferred taxes................................................... (178) (109) 28 Accrued interest receivable...................................... (92) (92) 354 Accrued interest payable......................................... 20 59 (13) Other assets..................................................... 639 (728) 292 Other liabilities................................................ (539) 224 (327) -------- -------- -------- Net cash from operating activities............................ (431) 1,007 (416) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of securities available for sale................. 62,290 20,612 Proceeds from maturities, calls, and paydowns of securities available for sale........................................................... 3,572 Purchase of securities available for sale............................ (55,974) (8,550) Proceeds from sales of securities held to maturity................... 9,251 Proceeds from maturities of securities held to maturity.............. 2 3,594 600 Purchase of securities held to maturity.............................. (6,558) (17,980) Loan originations net of principal payments on loans................. (7,905) (16,595) 7,177 Proceeds from sales of other real estate............................. 815 233 Proceeds from sale of mortgage servicing rights...................... 306 Premises and equipment expenditures.................................. (67) (137) (1,126) -------- -------- -------- Net cash from investing activities................................. 3,039 (7,401) (2,078) CASH FLOWS FROM FINANCING ACTIVITIES Acquisition of deposits.............................................. 6,767 Net change in deposits............................................... 1,233 (360) (16,076) Dividends............................................................ (289) (288) (266) Proceeds from FHLB advances.......................................... 3,000 4,728 15,000 Repayment of FHLB advances........................................... (13,728) Change in Federal funds purchased.................................... (1,100) 1,100 Exercise of stock options............................................ 9 Stock retired........................................................ (147) -------- -------- -------- Net cash from financing activities............................ (4,108) 5,180 (1,489) Net change in cash and cash equivalents................................ (1,500) (1,214) (3,983) Cash and cash equivalents at beginning of year......................... 8,121 9,335 13,318 -------- -------- -------- Cash and cash equivalents at end of year............................... $ 6,621 $ 8,121 $ 9,335 ======== ======== ======== Supplemental disclosures of cash flow information Cash paid during the year for Interest........................................................... $ 5,364 $ 3,871 $ 4,156 Income taxes....................................................... 35 645 Supplemental disclosures on noncash investing activities Transfer from loans to other real estate............................. 289 25 542 Transfer of securities to available for sale upon adoption of SFAS 115................................................................ 40,753 Transfer of securities from held to maturity to available for sale (Note 4)........................................................... 29,499
See accompanying notes to consolidated financial statements. F-31 114 NORTH BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 AND 1994 NOTE 1 -- NATURE OF OPERATIONS The consolidated financial statements include the accounts of North Bank Corporation and its wholly-owned subsidiary, North Bank (the Bank), and the Bank's wholly-owned subsidiary, First Central Mortgage Corporation, after elimination of significant inter-company transactions and accounts. On October 3, 1994, North Bank acquired First Central Mortgage Corporation, a residential mortgage originating company headquartered in Saginaw, Michigan. The acquisition was recorded under the purchase method. Intangible assets acquired are being amortized over their estimated economic lives. In October 1995, North Bank acquired a branch of First of America in Hubbard Lake, Michigan. Deposits acquired were approximately $6.8 million. Intangible assets associated with this acquisition are being amortized over their estimated economic lives. The Bank grants commercial, installment and residential loans to customers primarily in Northeastern Michigan. Although the loan portfolio is diversified, a substantial portion of its debtors' ability to honor their contracts is dependent upon the tourism industry. Primarily all installment and residential loans are secured by personal property and real estate. Approximately 96% of the commercial loans are secured by business assets and the remaining 4% are largely unsecured. The Bank's revenues primarily arise from interest income from residential mortgage lending activities, investments and revenue derived from mortgage banking through origination of, and sales of mortgage loans to the secondary market with servicing retained, and related servicing income. The Bank maintains eleven branches within Iosco, Ogemaw, Alpena, Presque Isle, Alcona and Montmorency counties of Michigan. NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The following summarize the significant accounting and reporting policies used in the preparation of the consolidated financial statements: Use of Estimates in Preparing 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, liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The primary estimates incorporated into the Corporation's financial statements which are susceptible to change in the near term include the allowance for loan losses, the determination and carrying value of impaired loans, the determination and carrying value of intangibles, the determination and carrying value of certain financial instruments and the realization of deferred tax assets. Securities: At December 31, 1993, the Corporation adopted Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS No. 115). As required by SFAS No. 115, securities classified as available for sale are reported at their fair value and the related unrealized holding gain or loss is reported, net of related income tax effects, as a separate component of shareholders' equity, until realized. Securities available for sale consist of those securities not classified as held to maturity. Such securities might be sold prior to maturity due to changes in interest rates, prepayment risks, yield and availability of alternative investments, liquidity needs or other factors. Securities for which management has the positive intent and the Corporation has the ability to hold to maturity are reported at amortized cost. Premiums and discounts on securities are recognized in interest income using the interest method over the period to maturity. Gains and losses on the sale of securities available for sale are determined using the specific identification method. F-32 115 NORTH BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED Loans and Interest and Fees on Loans: Loans are stated at their principal amount outstanding. Interest on loans is accrued over the term of the loan based upon the amount of the principal outstanding. The accrual of interest is discontinued on a loan when management believes serious doubt exists as to the collectibility of the loan principal or interest. Loan fees and certain direct loan origination costs are deferred and amortized into interest income over the term of the loans using the level yield method. Allowance for Loan Losses: Because some loans may not be repaid in full, an allowance for loan losses is recorded. Increases to the allowance are recorded by a provision for possible loan losses charged to expense. Estimating the risk of loss and the amount of loss on any loan is necessarily subjective. Accordingly, the allowance is maintained by management at a level considered adequate to cover possible losses that are currently anticipated based on past loss experience, general economic conditions, information about specific borrower situations including their financial position and collateral values, and other factors and estimates which are subject to change over time. While management may periodically allocate portions of the allowance for specific problem loan situations, the whole allowance is available for any loan charge-offs that occur. A loan is charged off by management as a loss when deemed uncollectible, although collection efforts continue and further recoveries may occur. Statement of Financial Accounting Standards No. 114, Accounting by Creditors for Impairment of a Loan (SFAS No. 114), as amended by SFAS No. 118, was adopted by the Corporation on January 1, 1995. Under this Standard, loans considered to be impaired are reduced to the present value of expected future cash flows or to the fair value of collateral, by allocating a portion of the allowance for loan losses to such loans. If these allocations cause the allowance for loan losses to require an increase, such an increase is reported as bad debt expense. The adoption of this Standard was immaterial to the 1995 consolidated financial statements. The carrying values of impaired loans are periodically adjusted to reflect cash payments, revised estimates of future cash flows, and increases in the present value of expected cash flows due to the passage of time. Cash payments representing interest income are reported as such. Other cash payments are reported as reductions in the carrying value of the loan. Increases or decreases due to changes in estimates of future payments and due to the passage of time are reported within the provision for loan losses. The Corporation has defined "impaired loans" as those loans for which it is probable that all principal and interest due will not be repaid in accordance with the original loan agreement. The Corporation has set minimum balance and condition requirements before a loan may be considered to be impaired. Loans Held for Sale: Mortgage loans originated and intended for sale in the secondary market are carried at the lower of cost or market value in the aggregate. Net unrealized losses are recognized in a valuation allowance by adjustments to income. Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are provided primarily on the straight-line basis over the estimated useful lives of the assets. Maintenance and repairs are expensed and major improvements are capitalized. At the time of sales or disposition of an asset, the applicable cost and accumulated depreciation amounts are removed from the books. Other Real Estate: Other real estate includes properties acquired through, or in lieu of, loan foreclosure and are initially recorded at fair value at the date of foreclosure establishing a new cost basis. After foreclosure, valuations are periodically performed by management and the real estate is carried at the lower of carrying amount or fair value less costs to sell. Revenue and expenses from operations and changes in the valuation allowance are included in loss on other real estate. F-33 116 NORTH BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED Intangible Assets and Goodwill: The value of core deposits acquired in a 1995 branch acquisition are amortized on an accelerated method over their expected lives. The excess of purchase price over the fair value of assets and liabilities acquired (goodwill) is amortized on a straight-line basis over 12 years. Income Taxes: In 1995, the Corporation retroactively adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS No. 109), by restating 1991 and subsequent years. The Corporation records income tax expense based on the amount of taxes due on its tax return plus deferred taxes computed based on the expected future tax consequences of temporary differences between the carrying amounts and tax bases of assets and liabilities, using enacted tax rates. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Net Income (Loss) Per Common Share: Net income (loss) per common share is based on the weighted average common shares outstanding during the years presented, retroactively adjusted for a two-for-one stock split effected December 31, 1993. The stock split was recorded at par value. Beginning in 1994, Employee Stock Ownership Plan shares are considered outstanding for net income(loss) per share calculations as they are committed to be released; unallocated shares are not considered outstanding. The weighted average number of common shares used in the per share computations were 481,759 in 1995, 472,876 in 1994 and 482,532 in 1993. Statement of Cash Flows: For purposes of this statement, cash and cash equivalents include cash on hand, demand deposits in other institutions, federal funds sold and short-term investments. The Corporation reports net cash flows for customer loan and deposit transactions. Impact of New Accounting Standards: The following new accounting standards have been issued by the Financial Accounting Standards Board that will apply in 1996. Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets, requires a review of long-term assets for impairment of recorded value and resulting write-downs if value is impaired. Statement of Financial Accounting Standards No. 122, Accounting for Mortgage Servicing Rights, requires recognition of an asset when servicing rights are retained on in-house originated loans that are sold. Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, requires proforma disclosure of the effect on net income of valuing future option grants at their estimated fair value. These Statements are not expected to have a material effect on the Corporation's financial position or results of operations. Reclassification: Certain reclassifications have been made to prior period consolidated financial statements to place them on a basis comparable with the current year's consolidated financial statements. NOTE 3 -- CASH AND DUE FROM BANKS Included in cash and due from banks are amounts required to be deposited with the Federal Reserve Bank. These reserve balances vary, depending on the level of customer deposits in the Corporation's subsidiary bank. At December 31, 1995 and 1994, the Federal Reserve balances were $717,000 and $694,000, respectively. F-34 117 NORTH BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 4 -- SECURITIES The amortized cost and fair value of securities are as follows at December 31, in thousands:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE --------- ---------- ---------- ------- AVAILABLE FOR SALE 1995 U.S. Government agencies............................ $20,660 $120 $ (9) $20,771 Obligations of states and political subdivisions.... 2,282 6 (16) 2,272 Mortgage-backed securities.......................... 24,786 54 (210) 24,630 Equity securities................................... 992 992 ------- ---- ------- ------- $48,720 $180 $ (235) $48,665 ======= ==== ======= ======= 1994 U.S. Government agencies............................ $ 462 $ (3) $ 459 Mortgage-backed securities.......................... 26,769 (1,718) 25,051 Equity securities................................... 993 993 ------- ------- ------- $28,224 $ (1,721) $26,503 ======= ======= ======= HELD TO MATURITY 1994 U.S. Government agencies............................ $ 952 $ (7) $ 945 Obligations of states and political subdivisions.... 12,965 $ 65 (580) 12,450 Mortgage-backed securities.......................... 16,667 (1,307) 15,360 ------- ---- ------- ------- $30,584 $ 65 $ (1,894) $28,755 ======= ==== ======= =======
Transfer of Securities from HTM to AFS: Effective in May 1995, the entire portfolio of securities held to maturity were reclassified as securities available for sale. The amount of securities transferred had a book value of $30,249,000, a fair value of $29,499,000, and a net unrealized loss of $750,000 at the time of transfer. Management believes that classification of all securities as available for sale will provide the Bank with greater flexibility in managing the Bank's assets and liabilities. The amortized cost and fair value of securities at December 31, 1995, by contractual maturity, are shown below in thousands. Maturities may 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 -------------------- AMORTIZED FAIR COST VALUE --------- ------- Due in one year or less................................................... $ 1,243 $ 1,239 Due after 1 year through 5 years.......................................... 6,507 6,522 Due after 5 years through 10 years........................................ 15,192 15,282 Mortgage-backed securities................................................ 24,786 24,630 Equity securities......................................................... 992 992 ------- ------- $48,720 $48,665 ======= =======
Because of their variable payments, mortgage-backed securities are not reported by a specific maturity grouping. F-35 118 NORTH BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 4 -- SECURITIES -- CONTINUED Sales activities for the years ended December 31 were as follows, in thousands:
AVAILABLE FOR SALE HELD TO MATURITY ----------------------------- ---------------------------- 1995 1994 1993 1995 1994 1993 ------- ------- ------- ------- ------- ------ Sales proceeds......................... $62,290 $20,612 $78,981 $9,251 Gross gains............................ 334 104 980 411 Gross losses........................... 445 478 167 23
At December 31, 1995, mortgage-backed securities with a carrying value of approximately $11,995,000 were pledged to secure public deposits and advances from the Federal Home Loan Bank (Note 10). NOTE 5 -- LOANS Total loans consist of the following at December 31, in thousands:
1995 1994 ------- ------- Commercial................................................................ $20,923 $17,349 Consumer.................................................................. 30,335 25,907 Real Estate............................................................... 39,073 38,577 ------- ------- $90,331 $81,833 ======= =======
Loans held for sale totaled $1,115,000 and $25,000 at December 31, 1995 and 1994, respectively. Loans sold with servicing retained totaled $1,671,000 and $32,088,000 at December 31, 1995 and 1994, respectively. NOTE 6 -- ALLOWANCE FOR LOAN LOSSES An analysis of activity in the allowance for loan losses for the years ended December 31, follows in thousands:
1995 1994 1993 ----- ----- ----- Balance -- January 1................................................. $ 949 $ 902 $ 993 Provision charged to expense....................................... 307 180 150 Loans charged off.................................................. (386) (207) (348) Recoveries......................................................... 118 74 107 ----- ----- ----- Balance -- December 31............................................... $ 988 $ 949 $ 902 ===== ===== =====
Information regarding impaired loans is as follows for 1995: Average investment in impaired loans................................. $ 319 Interest income recognized on impaired loans on cash basis........... 44
Information regarding impaired loans at December 31, 1995 is as follows: Total impaired loans................................................. $ 389 Less loans for which no allowance for loan losses is allocated....... (389) ----- Impaired loans for which an allowance for loan losses is allocated... $ 0 ===== Portion of allowance allocated to these loans........................ $ 0 =====
F-36 119 NORTH BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 6 -- ALLOWANCE FOR LOAN LOSSES -- CONTINUED Nonperforming loans, including loans on nonaccrual and loans past due greater than 90 days, totaled $1,014,000 at December 31, 1994. NOTE 7 -- PREMISES AND EQUIPMENT Premises and equipment by classification are as follows at December 31, in thousands:
1995 1994 ------- ------- Land...................................................................... $ 640 $ 497 Buildings and improvements................................................ 4,507 4,712 Furniture and fixtures.................................................... 3,974 3,915 ------- ------- 9,121 9,124 Accumulated depreciation.................................................. (3,541) (3,077) ------- ------- $ 5,580 $ 6,047 ======= =======
NOTE 8 -- DEPOSITS The aggregate amount of time certificates of deposit in denominations of $100,000 or more approximated $2,980,000 and $3,567,000 as of December 31, 1995 and 1994, respectively. At December 31, 1995, the maturity of certificates of deposits for each year is as follows: 1996............................................................................... $39,023 1997............................................................................... 4,432 1998............................................................................... 3,992 1999............................................................................... 4,185 2000............................................................................... 3,783 Afterwards......................................................................... 176 ------- $55,591 =======
NOTE 9 -- INCOME TAXES The following are the components of the federal income tax expense (benefit) for the years ended December 31, in thousands:
1995 1994 1993 ----- ---- ---- Current expense........................................................ $ 57 $ 27 $232 Deferred expense (benefit)............................................. (112) (13) 28 Net operating loss benefit............................................. (66) (96) ----- ---- ---- $(121) $(82) $260 ===== ==== ====
F-37 120 NORTH BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 9 -- INCOME TAXES -- CONTINUED The net deferred tax asset (liability) at December 31, 1995 and 1994 is comprised of the following:
1995 1994 ----- ------ Deferred tax assets Net unrealized depreciation on securities available for sale.............. $ 19 $ 585 Allowance for loan losses................................................. 154 140 Nonaccrual interest....................................................... 3 14 Pension................................................................... 100 AMT credit carry forward.................................................. 108 107 Net operating loss........................................................ 162 96 Other..................................................................... 32 36 ----- ------ 478 1,078 Deferred tax liabilities Fixed assets.............................................................. (348) (223) Purchase accounting adjustments........................................... (310) (477) Pension................................................................... (17) Other..................................................................... (45) (61) ----- ------ (720) (761) ----- ------ Net deferred tax asset (liability).......................................... $(242) $ 317 ===== ======
No valuation allowance has been provided on deferred tax assets. The difference between the financial statement tax expense and amounts computed by applying the federal statutory tax rate of 34% to pretax income is reconciled as follows:
1995 1994 1993 ----- ----- ----- Statutory rate applied to income (loss) before federal income taxes.............................................................. $ (51) $ 85 $ 575 Add (Deduct) Effect of tax exempt interest...................................... (125) (210) (299) Effect of disallowed interest expense.............................. 19 27 31 Other.............................................................. 36 16 (47) ----- ----- ----- $(121) $ (82) $ 260 ===== ===== =====
A tax operating loss carryforward in the amount of $96,000 expires in 2009. The remaining $66,000 in carryforward expires in 2010. F-38 121 NORTH BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 10 -- LONG TERM BORROWINGS Included in long-term borrowings on the consolidated balance sheets are advances from the Federal Home Loan Bank (FHLB) which consist of the following at December 31, in thousands:
RATE AT DECEMBER 31,1995 MATURITY 1995 1994 ----------------- ------------------ ------ ------- Adjustable Rate Advances: November 10, 1999 $ 5,000 5.908% July 15, 1998 $9,000 10,000 Fixed Rate Advances: August 15, 2003 2,364 December 15, 2003 2,364 ------ ------- $9,000 $19,728 ====== =======
The adjustable rate advances are priced at the three-month LIBOR rate less three basis points. The advances are secured by approximately $11,495,000 in securities as of December 31, 1995. Interest is payable in monthly installments through the date of maturity. Prepayments on the adjustable rate advances up to 10% of the principal balance will be accepted by the FHLB given the Corporation's notification to the FHLB of their intent to prepay. NOTE 11 -- EMPLOYEE BENEFIT PLANS The Corporation maintains an Employee Stock Ownership Plan (ESOP), which invests primarily in stock of North Bank Corporation. The ESOP is a stock bonus and defined contribution plan covering substantially all full-time employees ages 21 or older, having completed one full year of service. In accordance with the terms of the ESOP, employees may make voluntary contributions to the Plan of up to 10 percent of eligible compensation, subject to certain limitations. The Corporation will match employee contributions equal to the greater of 50% of the first 6% of compensation deferred by the participant or a discretionary amount determined by the employer. The Corporation may also make a supplemental matching contribution to the Plan in an amount determined by the employer. The Corporation's contributions for 1995 and 1994 were $62,000 and $49,000, respectively. At December 31, 1995, 48,114 shares were allocated to individual participants under the plan. The ESOP had a loan from a commercial bank which was paid off during 1995. Accordingly, the Corporation had guaranteed the ESOP's debt. As loan payments were made, unallocated shares were released and allocated to plan participants. The ESOP's repayments of the debt were made from the contributions and dividends on stock it received from the Corporation. The Corporation has a stock option plan, adopted by shareholders in 1993, which provides for the grant of a maximum of 20,000 shares of the Corporation's common stock to certain officers and employees at a price which is not less than the fair market value of the stock at the time the options are granted. The options F-39 122 NORTH BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 11 -- EMPLOYEE BENEFIT PLANS -- CONTINUED granted are exercisable immediately and expire five years after the date of the grant. No options were granted in 1993. Activity in the plan was as follows:
SHARES OPTION SUBJECT TO PRICE OPTION ------ ---------- Options granted in 1994................................................... $16.25 3,039 Options expired......................................................... 16.25 (218) ----- Outstanding December 31, 1994............................................. 2,821 Options granted......................................................... 16.45 3,412 Options expired......................................................... 16.25 (262) Options expired......................................................... 16.45 (255) Options exercised....................................................... 16.25 (283) Options exercised....................................................... 16.45 (279) ----- Outstanding December 31, 1995............................................. 5,154 Exercisable at December 31, 1995.......................................... 16.25 2,276 ----- 16.45 2,878 ----- 5,154 =====
Nonqualified stock options were granted to an officer of the Corporation during 1993. The options cover 4,000 shares of common stock at the price of $15.13 and expire in 1998. At December 31, 1995, the options had not been exercised. The Corporation sponsored a non-contributory, defined benefit pension plan covering substantially all employees. On December 31, 1994, the Corporation curtailed the defined benefit pension plan, which resulted in the freezing of benefits as of that date. The net loss due to the plan curtailment was $72,230 for 1994. During December 1995, the Corporation terminated the plan and settled $1,103,000 of the accumulated benefit obligation by making cash payments to plan participants and purchasing nonparticipating annuity contracts. The remaining accumulated benefit obligation is expected to be settled by April 1996. Defined benefits were not provided under any successor plan. The net loss due to the plan settlement was $773,910 for 1995. The following sets forth the plan's funded status and amounts recognized in the consolidated balance sheets at December 31, in thousands:
1995 1994 ---- ------- Actuarial present value of vested accumulated benefit obligation............ $(88) $(1,098) Plan assets at fair value................................................... 178 802 ---- ------- Excess (deficiency) of plan assets over (under) accumulated benefit obligation............................................................. 90 (296) Unrecognized net loss....................................................... 536 Unrecognized transition asset............................................... (33) Adjustment required to recognize minimum liability.......................... (503) ---- ------- Net pension assets (liabilities).......................................... $ 90 $ (296) ==== =======
F-40 123 NORTH BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 11 -- EMPLOYEE BENEFIT PLANS -- CONTINUED Net pension cost included in operations, including the effects of curtailment and settlement, consisted of the following components:
1995 1994 1993 ---- ---- ------- Service cost-benefits earned.......................................... $ 88 $ 80 Interest cost on projected benefit obligation......................... $ 75 80 79 Expected return on plan assets........................................ (92) (76) (71) Net amortization and deferral......................................... (1) 34 34 Net loss due to curtailment........................................... 72 Net loss due to settlement............................................ 774 ---- ---- ------- Net periodic pension cost........................................... $756 $198 $ 122 ==== ==== =======
In accordance with the provisions of Statement of Financial Accounting Standards No. 87, the Corporation recorded an additional minimum pension liability adjustment in 1994 representing the excess of the accumulated benefit obligation over the fair value of plan assets plus the amount recognized as prepaid pension costs. The additional minimum pension liability was included in "Other liabilities". This transaction, which had no impact on earnings, resulted in a reduction of shareholders' equity in 1994 of $332,640, net of tax. A weighted average discount rate of 7% was used in determining the actuarial present value of the accumulated benefit obligation in 1995 and 1994. The expected long-term rate of return on plan assets was 9% in both years. NOTE 12 -- RELATED PARTY TRANSACTIONS The Corporation enters into transactions with certain executive officers, directors, and their related interests. Included in these transactions are loans which amounted to approximately $130,000 and $309,000 at December 31, 1995 and 1994, respectively. Deposit accounts with the same individuals amounted to $549,324 and $492,863 at December 31, 1995 and 1994, respectively. NOTE 13 -- COMMITMENTS AND CONTINGENCIES From time to time, the Corporation is involved in legal matters in the ordinary course of business. Management believes that the ultimate resolution of such matters will not have a material effect on the consolidated financial statements. The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet financing needs of its customers. These financial instruments include commitments to make loans and unused lines of credit. The Bank follows the same credit policy to make such commitments as is followed for loans and investments recorded in the consolidated financial statements. As of December 31, 1995, the Bank has outstanding commitments to make loans of which 67% are at fixed rates. These interest rates range from 8.25% to 9.75%. The Bank also funds unused lines of credit of which 26% are at fixed rates. The fixed interest rates on the line of credits range from 6.20% to 11.75%. Outstanding commitments at December 31 were as follows:
1995 1994 ---------- ---------- To make loans........................................................ $ 341,000 $ 201,000 To fund lines of credit.............................................. 7,152,000 3,091,000 To extend letters of credit.......................................... 75,000 68,000
F-41 124 NORTH BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 14 -- NORTH BANK CORPORATION (PARENT COMPANY ONLY) CONDENSED FINANCIAL INFORMATION (IN THOUSANDS) Presented below are condensed financial statements for the parent company: CONDENSED BALANCE SHEETS
1995 1994 ------- ------ Assets Cash.................................................................. $ 34 $ 37 Investment in subsidiary.............................................. 10,545 9,415 Other assets.......................................................... 67 71 -------- ------ $10,646 $9,523 ======== ====== Shareholders' equity.................................................... $10,646 $9,523 ======== ======
CONDENSED STATEMENTS OF INCOME
1995 1994 1993 ---- ---- ------ Dividends from subsidiary......................................... $289 $317 $ 578 Operating expenses................................................ 20 73 64 ---- ---- ------ Income before federal income tax and equity in undistributed or excess distributed earnings or loss of subsidiary........ 269 244 514 Federal income tax benefit........................................ 4 25 20 ---- ---- ------ Income before equity in undistributed or excess distributed earnings or loss of subsidiary.............................. 273 269 534 Equity in undistributed or excess distributed earnings or loss of subsidiary...................................................... (302) 64 897 ---- ---- ------ Net income................................................... $(29) $333 $1,431 ==== ==== ======
F-42 125 NORTH BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 14 -- NORTH BANK CORPORATION (PARENT COMPANY ONLY) CONDENSED FINANCIAL INFORMATION (IN THOUSANDS) -- CONTINUED CONDENSED STATEMENTS OF CASH FLOWS
1995 1994 1993 ----- ----- ------- CASH FLOW FROM OPERATING ACTIVITIES Net income (loss).......................................... $ (29) $ 333 $ 1,431 Adjustments to reconcile net income to net cash from operating activities Equity in subsidiary's net (income)loss................. 13 (381) (1,475) Increase (decrease) in other assets..................... 4 (13) (8) ----- ----- ------- Net cash from operating activities................. (12) (61) (52) CASH FLOW FROM INVESTING ACTIVITIES Increase (decrease) in advances to subsidiary.............. (45) Dividends from subsidiary.................................. 289 317 578 ----- ----- ------- Net cash from investing activities................. 289 317 533 CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid to shareholders............................. (289) (288) (265) Issuance of common stock................................... 9 Repurchases of common stock................................ (147) ----- ----- ------- Net cash from financing activities................. (280) (288) (412) Net increase in cash and cash equivalents.................... (3) (32) 69 Cash at beginning of period................................ 37 69 ----- ----- ------- Cash at end of year................................ $ 34 $ 37 $ 69 ===== ===== =======
NOTE 15 -- DISCLOSURES REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS (IN THOUSANDS) The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and Short-Term Investments: For these short-term instruments, the carrying amount is a reasonable estimate of fair value. Securities: For securities, fair value is based upon market price quotes from brokers utilizing pricing formulas. Loans: The fair value of loans is estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Deposit Liabilities: The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated by discounting future cash flows using the rates currently offered for deposits of similar remaining maturities. Long-Term Borrowings: The fair value of FHLB advances is estimated by discounting future cash flows using rates currently offered for similar terms. Accrued Interest Receivable/Payable: For these items, the carrying amount is a reasonable estimate of fair value. F-43 126 NORTH BANK CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED NOTE 15 -- DISCLOSURES REGARDING FAIR VALUE OF FINANCIAL INSTRUMENTS (IN THOUSANDS) -- CONTINUED Commitments to Extend Credit and Standby Letters of Credit: The fair value of commitments is estimated using the fees currently charged to enter similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties. For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates. The fair value of letters of credit is based on fees currently charged for similar agreements or on the estimated costs to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The fair values associated with these financial instruments are immaterial at December 31, 1995 and 1994. The estimated fair values of the Corporation's financial instruments are as follows:
1995 1995 -------------------- -------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE -------- -------- -------- -------- Financial assets Cash and short-term investments................... $ 6,621 $ 6,621 $ 8,121 $ 8,121 Securities........................................ 48,665 48,665 57,087 55,257 Loans............................................. 90,331 90,159 81,833 80,308 Less: allowance for loan loss..................... (988) (988) (949) (949) Accrued interest receivable....................... 1,102 1,102 1,010 1,010 Financial liabilities Deposits.......................................... 131,765 132,267 123,765 124,121 Borrowings........................................ 9,000 9,000 20,828 20,328 Accrued interest payable.......................... 516 516 496 496
NOTE 16 -- RESTRICTIONS ON SUBSIDIARY DIVIDENDS Banking laws and regulations restrict the amount the Bank can transfer to the Corporation in the form of cash dividends. At December 31, 1995, $3.6 million of retained earnings of the Bank was available for distribution to the Corporation as dividends without prior regulatory approval. It is not the intent of management to pay dividends in amounts which would reduce the capital of the Bank to a level below that which is considered prudent by management and in accordance with the guidelines of regulatory authorities. NOTE 17 -- PENDING MERGER In February 1996, the Corporation entered into a definitive agreement to be acquired by Independent Bank Corporation of Ionia, Michigan (a publicly-traded corporation). The purchase price is estimated to be $33 per share of North Bank Corporation common stock. The acquisition is subject to both regulatory and shareholder approval and is expected to be completed during the second quarter of 1996. F-44 127 ------------------------------------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary...................... 4 Risk Factors............................ 9 Recent Developments..................... 15 Use of Proceeds......................... 16 Market for the Preferred Securities..... 16 Accounting Treatment.................... 16 Capitalization.......................... 17 Selected Consolidated Financial Data.... 18 Management's Discussion and Analysis of Financial Condition and Results of Operations............................ 19 Business................................ 34 Supervision and Regulation.............. 39 Description of Preferred Securities..... 46 Description of Subordinated Debentures............................ 58 Book-Entry Issuance..................... 67 Description of Guarantee................ 69 Relationship Among the Preferred Securities, the Subordinated Debentures and the Guarantee.......... 71 Description of Capital Stock............ 73 Certain Federal Income Tax Consequences.......................... 74 ERISA Considerations.................... 77 Underwriting............................ 78 Validity of Securities.................. 78 Experts................................. 79 Available Information................... 79 Incorporation of Certain Documents by Reference............................. 80 Index to Consolidated Financial Statements............................ F-1
------------------------ NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY IBC CAPITAL, THE COMPANY OR THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. ------------------------------------------------------ ------------------------------------------------------ 600,000 PREFERRED SECURITIES IBC CAPITAL FINANCE % CUMULATIVE TRUST PREFERRED SECURITIES (LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY) FULLY AND UNCONDITIONALLY GUARANTEED, AS DESCRIBED HEREIN, BY INDEPENDENT BANK CORPORATION LOGO ------------------------ Prospectus , 1996 ------------------------ STIFEL, NICOLAUS & COMPANY INCORPORATED ------------------------------------------------------ 128 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Expenses in connection with the issuance and distribution of the securities being registered are estimated as follows, all of which are to be borne by the Company: SEC Registration Fee............................................... $5,227.27 NASD Filing Fee.................................................... Nasdaq Listing Fee................................................. * Printing and Engraving Expenses.................................... * Accounting Fees.................................................... * Transfer and Registrar's Fees...................................... * Legal Fees and Expenses............................................ * Blue Sky Qualification Fees and Expenses........................... * Miscellaneous...................................................... * --------- Total......................................................... =========
- ------------------------- * To be completed by amendment. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Articles of Incorporation of the Company provide that its directors and officers are to be indemnified as of right to the fullest extent permitted under the Michigan Business Corporation Act ("MBCA"). Under the MBCA, directors, officers, employees or agents are entitled to indemnification against expenses (including attorneys' fees) whenever they successfully defend legal proceedings brought against them by reason of the fact that they hold such a position with the corporation. In addition, with respect to actions not brought by or in the right of the corporation, indemnification is permitted under the MBCA for expenses (including attorneys' fees), judgments, fines, penalties and reasonable settlement if it is determined that the person seeking indemnification acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation or its shareholders and, with respect to criminal proceedings, he or she had no reasonable cause to believe that his or her conduct was unlawful. With respect to actions brought by or in the right of the corporation, indemnification is permitted under the MBCA for expenses (including attorneys' fees) and reasonable settlements, if it is determined that the person seeking indemnification acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation or its shareholders; provided, indemnification is not permitted if the person is found liable to the corporation, unless the court in which the action or suit was brought has determined that indemnification is fair and reasonable in view of all the circumstances of the case. The MBCA specifically provides that it is not the exclusive source of indemnity. As a result, the Company adopted individual indemnification agreements with its directors. Approved by the Company's shareholders, the indemnification agreements provide a contractually enforceable right for prompt indemnification, except that indemnification is not required where: (i) indemnification is provided under an insurance policy, except for amounts in excess of insurance coverage; (ii) indemnification is provided by the Company outside of the agreement; (iii) the claim involved a violation of Section 16(b) of the Securities Exchange Act of 1934 or similar provision of state law; or (iv) indemnification by the Company is otherwise prohibited by law. In the case of a derivative or other action by or in the right of the Company where a director is found liable, indemnity is predicated on the determination that indemnification is nevertheless appropriate, by majority vote of a committee of disinterested directors, independent legal counsel, or a court where the claim is litigated, whichever the indemnitee chooses. The protection provided by the indemnification agreements is broader than that under the MBCA, where indemnification in such circumstances is available only where specifically authorized by the court where the claim is litigated. II-1 129 In addition to the available indemnification, the Company's Articles of Incorporation, as amended, limit the personal liability of the members of its Board of Directors for monetary damages with respect to claims by the Company or its shareholders resulting from certain negligent acts or omissions. Under an insurance policy maintained by the Company, the directors and officers of the Company are insured within the limits and subject to the limitations of the policy, against certain expenses in connection with the defense of certain claims, actions, suits or proceedings, and certain liabilities which might be imposed as a result of such claims, action, suits or proceedings, which may be brought against them by reason of being or having been such directors and officers. Under the Trust Agreement, the Company will agree to indemnify each of the Trustees of IBC Capital or any predecessor Trustee for IBC Capital, and to hold each Trustee harmless against, any loss, damage, claims, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the Trust Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties under the Trust Agreement. The Company and IBC Capital have agreed to indemnify the Underwriter, and the Underwriter has agreed to indemnify IBC Capital and the Company against certain civil liabilities, including liabilities under the Securities Act of 1933, as amended. Reference is made to the Underwriting Agreement filed as Exhibit 1 herewith. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. Reference is made to the Exhibit Index which appears at page II-4 of the Registration Statement. ITEM 17. UNDERTAKINGS. Insofar as indemnification for liabilities under the Securities Act of 1933, as amended (the "Act") may be permitted to directors, officers and controlling persons of the Company pursuant of the foregoing provisions, or otherwise, the Company has been advised that, in the opinion of the Securities and Exchange Commission such indemnification is against the public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned Company hereby undertakes that: (1) For purposes of determining any liability under the Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; and (2) For the purpose of determining any liability under the Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-2 130 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Company certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-2 and has duly caused this Amendment to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Ionia, State of Michigan on December 6, 1996. INDEPENDENT BANK CORPORATION /s/ CHARLES C. VAN LOAN -------------------------------------- Charles C. Van Loan, Principal Executive Officer Pursuant to the requirements of Securities Act of 1933, IBC Capital Finance certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-2 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Ionia, and the State of Michigan on the 6th day of December, 1996. IBC CAPITAL FINANCE By: /s/ WILLIAM R. KOHLS -------------------------------------- William R. Kohls, Trustee By: /s/ CHARLES C. VAN LOAN -------------------------------------- Charles C. Van Loan, Trustee Pursuant to the requirements of the Securities Act of 1933, this Amendment to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE POSITION DATE - ------------------------------------- --------------------------------- ---------------- /s/ CHARLES C. VAN LOAN Principal Executive Officer and December 6, 1996 - ------------------------------------- Director Charles C. Van Loan /s/ WILLIAM R. KOHLS Principal Financial Officer December 6, 1996 - ------------------------------------- William R. Kohls /s/ JAMES J. TWAROZYNSKI Principal Accounting Officer December 6, 1996 - ------------------------------------- James J. Twarozynski /s/ WILLIAM F. EHINGER* Director December 6, 1996 - ------------------------------------- William F. Ehinger /s/ KEITH E. BAZAIRE* Director December 6, 1996 - ------------------------------------- Keith E. Bazaire /s/ TERRY L. HASKE* Director December 6, 1996 - ------------------------------------- Terry L. Haske /s/ THOMAS F. KOHN* Director December 6, 1996 - ------------------------------------- Thomas F. Kohn /s/ ROBERT J. LEPPINK* Director December 6, 1996 - ------------------------------------- Robert J. Leppink /s/ REX P. O'CONNOR* Director December 6, 1996 - ------------------------------------- Rex P. O'Connor /s/ ARCH V. WRIGHT, JR.* Director December 6, 1996 - ------------------------------------- Arch V. Wright, Jr. /s/ CHARLES A. PALMER* Director December 6, 1996 - ------------------------------------- Charles A. Palmer *By /s/ WILLIAM R. KOHLS - ------------------------------------- William R. Kohls, Attorney-in-Fact
II-3 131 EXHIBIT INDEX
EXHIBIT NUMBER AND DESCRIPTION ------------------------------------------------------------------------------- 1* Form of Underwriting Agreement 4.1* Form of Indenture, to be dated as of December , 1996. 4.2* Form of Subordinated Debenture (included as an exhibit to Exhibit 4.1) 4.3 Certificate of Trust of IBC Capital Finance. 4.4 Trust Agreement of IBC Capital Finance dated as of November 7, 1996. 4.5* Form of Amended and Restated Trust Agreement of IBC Capital Finance to be dated as of December , 1996. 4.6 Form of Preferred Security Certificate of IBC Capital Finance (included as an exhibit to Exhibit 4.5.) 4.7 Form of Preferred Securities Guarantee Agreement for IBC Capital Finance. 4.8 Form of Agreement as to Expenses and Liabilities (included as an exhibit to Exhibit 4.5). 4.9 Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 3(i) to the Company's report on Form 10-Q for the quarter ended June 30, 1994). 4.10 Amended and Restated Bylaws of the Company (incorporated herein by reference to Exhibit 3(ii) to the Company's report on Form 10-Q for the quarter ended June 30, 1994). 5.1* Opinion of Varnum, Riddering, Schmidt & Howlett LLP as to the validity of the issuance of the Subordinated Debentures and the Guarantee to be issued by the Company. 5.2* Opinion of Richards, Layton & Finger, special Delaware counsel, as to the validity of the issuance of Preferred Securities to be issued by IBC Capital Finance. 8* Opinion of Varnum, Riddering, Schmidt & Howlett LLP as to certain federal income tax matters. 10(A) Deferred Benefit Plan for Directors (incorporated herein by reference to Exhibit 10(C) to the Company's report on Form 10-K for the year ended December 31, 1984) 10(B) The form of Indemnity Agreement approved by the Company's shareholders at its April 19, 1988 Annual Meeting, as executed with all of the Directors of the Company (incorporated herein by reference to Exhibit 10(F) to the Company's report on Form 10-K for the year ended December 31, 1988) 10(C) Incentive Share Grant Plan, as amended, approved by the Company's shareholders at its April 21, 1992 Annual Meeting (incorporated herein by reference to Exhibit 10 to the Company's report on Form 10-K for the year ended December 31, 1992) 10(D) Nonemployee Director Stock Option Plan, approved by the Company's shareholders at its April 21, 1992 Annual Meeting (incorporated herein by reference to Exhibit 28 to the Company's Form S-8 Registration Statement, dated April 23, 1993, filed under Registration No. 33-62086) 10(E) Employee Stock Option Plan, approved by the Company's shareholders at its April 21, 1992 Annual Meeting (incorporated herein by reference to Exhibit 28 to the Company's Form S-8 Registration Statement, dated April 30, 1993, filed under Registration No. 33-62090) 10(F) Agreement and Plan of Reorganization among the Company, IBC Interim Co., and North Bank Corporation, dated February 2, 1996 (incorporated by reference to Exhibit 2.1 to the Company's Current Report on 8-K filed June 16, 1996) 10(G) Agreement to Purchase Assets and Assume Liabilities By and Between the Company and First of America Bank-Michigan, National Association, dated September 18, 1996 12* Computation of ratio of earnings to fixed charges.
II-4 132
EXHIBIT NUMBER AND DESCRIPTION ------------------------------------------------------------------------------- 23.1* Consent of KPMG Peat Marwick LLP, Independent Auditors. 23.2* Consent of Crowe, Chizek and Company LLP, Independent Auditors. 23.3* Consent of Varnum, Riddering, Schmidt & Howlett LLP (included in their opinion filed herewith as Exhibit 5.1) 23.4* Consent of Richards, Layton & Finger (included in their opinion filed herewith as Exhibit 5.2) 24 Power of Attorney (included on the signature page) 25.1* Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under the Indenture. 25.2* Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under Amended and Restated Trust Agreement. 25.3* Form T-1 Statement of Eligibility of State Street Bank and Trust Company to act as trustee under the Preferred Securities Guarantee Agreement.
- ------------------------- * Filed herewith. II-5 EX-1 2 EXHIBIT 1 1 EXHIBIT 1 600,000 Preferred Securities IBC Capital Finance ___% Cumulative Trust Preferred Securities (Liquidation Amount of $25 per Preferred Security) UNDERWRITING AGREEMENT December __, 1996 STIFEL, NICOLAUS & COMPANY, INCORPORATED 500 North Broadway St. Louis, Missouri 63102 Dear Sirs: Independent Bank Corporation, a Michigan corporation (the "Company") and its financing subsidiary, IBC Capital Finance, a Delaware business trust (the "Trust", and hereinafter together with the Company, the "Offerors"), propose that the Trust issue and sell to Stifel, Nicolaus & Company, Incorporated (sometimes referred to herein as the "Underwriter"), pursuant to the terms of this Agreement, 600,000 of the Trust's ____% Cumulative Trust Preferred Securities, with a liquidation amount of $25.00 per preferred security (the "Preferred Securities"), to be issued under the Trust Agreement (as hereinafter defined), the terms of which are more fully described in the Prospectus (as hereinafter defined). The aforementioned 600,000 Preferred Securities to be sold to the Underwriter are herein called the "Firm Preferred Securities". Solely for the purpose of covering over-allotments in the sale of the Firm Preferred Securities, the Offerors further propose that the Trust issue and sell to the Underwriter, at its option, up to an additional 90,000 Preferred Securities (the "Option Preferred Securities") upon exercise of the over-allotment option granted in Section 1 hereof. The Firm Preferred Securities and any Option Preferred Securities are herein collectively referred to as the "Designated Preferred Securities". The Offerors hereby confirm as follows their agreement with the Underwriter in connection with the proposed purchase of the Designated Preferred Securities. 2 1. SALE, PURCHASE AND DELIVERY OF DESIGNATED PREFERRED SECURITIES; DESCRIPTION OF DESIGNATED PREFERRED SECURITIES. (a) On the basis of the representations, warranties and agreements herein contained, and subject to the terms and conditions herein set forth, the Offerors hereby agree that the Trust shall issue and sell to the Underwriter and the Underwriter agrees to purchase from the Trust, at a purchase price of $25.00 per share (the "Purchase Price"), the Firm Preferred Securities. Because the proceeds from the sale of the Firm Preferred Securities will be used to purchase from the Company its Subordinated Debentures (as hereinafter defined and as described in the Prospectus), the Company shall pay to the Underwriter a commission of $____ per Firm Preferred Security (the "Firm Preferred Securities Commission"). In addition, on the basis of the representations, warranties and agreements herein contained and subject to the terms and conditions herein set forth, the Trust hereby grants to the Underwriter an option to purchase all or any portion of the 90,000 Option Preferred Securities, and upon the exercise of such option in accordance with this Section 1, the Offerors hereby agree that the Trust shall issue and sell to the Underwriter, and the Underwriter agrees to purchase from the Trust, all or any portion of the Option Preferred Securities at the same Purchase Price per share paid for the Firm Preferred Securities. Because the proceeds from the sale of the Option Preferred Securities will be used to purchase from the Company its Subordinated Debentures, the Company shall pay to the Underwriter a commission of $______ per Option Preferred Security for each Option Preferred Security purchased (the "Option Preferred Securities Commission"). The option hereby granted (the "Option") shall expire 30 days after the date upon which the Registration Statement (as hereinafter defined) becomes effective and may be exercised only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Firm Preferred Securities. The Option may be exercised in whole or in part at any time (but not more than once) by the Underwriter giving notice (confirmed in writing) to the Trust setting forth the number of Option Preferred Securities as to which the Underwriter is exercising the Option and the time, date and place for payment and delivery of certificates for such Option Preferred Securities. Such time and date of payment and delivery for the Option Preferred Securities (the "Option Closing Date") shall be determined by the Underwriter, but shall not be earlier than two nor later than five full business days after the exercise of such Option, nor in any event prior to the Closing Date (as hereinafter defined). The Option Closing Date may be the same as the Closing Date. Payment of the Purchase Price and the Firm Preferred Securities 2 3 Commission and delivery of certificates for the Firm Preferred Securities shall be made at the offices of the Underwriter, 500 North Broadway, St. Louis, Missouri 63102, or such other place as shall be agreed to by the Underwriter and the Offerors, at 10:00 a.m., St. Louis time, on _____ __, 1996, or at such other time not more than five full business days thereafter as the Offerors and the Underwriter shall determine (the "Closing Date"). If the Underwriter exercises the option to purchase any or all of the Option Preferred Securities, payment of the Purchase Price and Option Preferred Securities Commission and delivery of certificates for such Option Preferred Securities shall be made on the Option Closing Date at the Underwriter's office, or at such other place as the Offerors and the Underwriter shall determine. Such payments shall be made to an account designated by the Trust by wire transfer prior to 1:00 p.m. eastern standard time on the Closing Date, in the amount of the Purchase Price therefor, against delivery by or on behalf of the Trust to the Underwriter of certificates for the Designated Preferred Securities to be purchased by the Underwriter. The Agreement contained herein with respect to the timing of the Closing Date and Option Closing Date is intended to, and does, constitute an express agreement, as described in Rule 15c6-1(c) and (d) promulgated under the 1934 Act (as defined herein), for a settlement date other than four business days after the date of the contract. Certificates for Designated Preferred Securities to be purchased by the Underwriter shall be delivered to the Offerors in fully registered form in the name of Cede & Co., the nominee of the Depositary (as defined in the Prospectus) which shall act as securities depositary for the Designated Preferred Securities, not later than 12:00 noon, St. Louis time, two business days prior to the Closing Date and, if applicable, the Option Closing Date. Certificates for Designated Preferred Securities to be purchased by the Underwriter shall be made available by the Offerors to the Underwriter for inspection, checking and packaging at the offices of the Depositary not later than 1:00 p.m., St. Louis time, on the last business day prior to the Closing Date and, if applicable, on the last business day prior to the Option Closing Date. Time shall be of the essence, and delivery of the certificates for the Designated Preferred Securities at the time and place specified pursuant to this Agreement is a further condition of the obligations of the Underwriter hereunder. (b) The Offerors propose that the Trust issue the Designated Preferred Securities pursuant to an Amended and Restated Trust Agreement among State Street Bank and Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware Trustee, the Administrative Trustees named therein, (collectively, the "Trustees"), and the Company, in substantially the form heretofore delivered to the Underwriter, said Agreement being hereinafter referred to as the "Trust 3 4 Agreement". In connection with the issuance of the Designated Preferred Securities, the Company proposes (i) to issue its Subordinated Debentures ( the "Debentures") pursuant to an Indenture, dated as of _____________, 1996, between the Company and State Street Bank and Trust Company, as Trustee (the "Indenture") and (ii) to guarantee certain payments on the Designated Preferred Securities pursuant to a Guarantee Agreement between the Company and State Street Bank and Trust Company, as guarantee trustee (the "Guarantee"), to the extent described therein. 2. REPRESENTATIONS AND WARRANTIES. (a) The Offerors jointly and severally represent and warrant to, and agree with, the Underwriter that: (i) The reports filed with the Securities and Exchange Commission (the "Commission") by the Company under the Securities Exchange Act of 1934, as amended (the "1934 Act") and the rules and regulations thereunder (the "1934 Act Regulations") at the time they were filed with the Commission, complied as to form in all material respects with the requirements of the 1934 Act and the 1934 Act Regulations and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. (ii) The Offerors have prepared and filed with the Commission a registration statement on Form S-2 (File No. 333-14507) for the registration of the Designated Preferred Securities, the Guarantee and $17,250,000 aggregate principal amount of Debentures under the Securities Act of 1933, as amended (the "1933 Act"), including the related prospectus subject to completion, and one or more amendments to such registration statement may have been so filed, in each case in conformity in all material respects with the requirements of the 1933 Act, the rules and regulations promulgated thereunder (the "1933 Act Regulations") and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") and the rules and regulations thereunder. Copies of such registration statement, including any amendments thereto, each Preliminary Prospectus (as defined herein) contained therein and the exhibits, financial statements and schedules to such registration statement, as finally amended and revised, have heretofore been delivered by the Offerors to the Underwriter. After the execution of this Agreement, the Offerors will file with the Commission (A) if such registration statement, as it may have been amended, has been declared by the Commission to be effective under the 1933 Act, a prospectus in the form most recently included in an amendment to such registration statement (or, if no such amendment shall have been filed, in such registration 4 5 statement), with such changes or insertions as are required by Rule 430A of the 1933 Act Regulations ("Rule 430A") or permitted by Rule 424(b) of the 1933 Act Regulations ("Rule 424(b)") and as have been provided to and not objected to by the Underwriter prior to (or as are agreed to by the Underwriter subsequent to) the execution of this Agreement, or (B) if such registration statement, as it may have been amended, has not been declared by the Commission to be effective under the 1933 Act, an amendment to such registration statement, including a form of final prospectus, necessary to permit such registration statement to become effective, a copy of which amendment has been furnished to and not objected to by the Underwriter prior to (or is agreed to by the Underwriter subsequent to) the execution of this Agreement. As used in this Agreement, the term "Registration Statement" means such registration statement, as amended at the time when it was or is declared effective under the 1933 Act, including (1) all financial schedules and exhibits thereto, (2) all documents (or portions thereof) incorporated by reference therein filed under the 1934 Act, and (3) any information omitted therefrom pursuant to Rule 430A and included in the Prospectus (as hereinafter defined); the term "Preliminary Prospectus" means each prospectus subject to completion filed with such registration statement or any amendment thereto including all documents (or portions thereof) incorporated by reference therein under the 1934 Act (including the prospectus subject to completion, if any, included in the Registration Statement and each prospectus filed pursuant to Rule 424(a) under the 1933 Act); and the term "Prospectus" means the prospectus first filed with the Commission pursuant to Rule 424(b)(1) or (4) or, if no prospectus is required to be filed pursuant to Rule 424(b)(1) or (4), the prospectus included in the Registration Statement, in each case including the financial schedules and all documents (or portions thereof) incorporated by reference therein under the 1934 Act. The date on which the Registration Statement becomes effective is hereinafter referred to as the "Effective Date." (iii) The documents incorporated by reference in the Preliminary Prospectus or Prospectus or from which information is so incorporated by reference, when they became effective or were filed with the Commission, as the case may be, complied in all material respects with the requirements of the 1934 Act and the 1934 Act Regulations, and when read together and with the other information in the Preliminary Prospectus or Prospectus, as the case may be, at the time the Registration Statement became or becomes effective and at the Closing Date and any Option Closing Date, did not or will not, as the case may be, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 5 6 (iv) No order preventing or suspending the use of any Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) has been issued by the Commission, nor has the Commission, to the knowledge of the Offerors, threatened to issue such an order or instituted proceedings for that purpose. Each Preliminary Prospectus, at the time of filing thereof, (A) complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and (B) did not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty does not apply to statements or omissions made in reliance upon and in conformity with information furnished in writing to the Offerors by the Underwriter expressly for inclusion in the Prospectus beneath the heading "Underwriting" (such information referred to herein as the "Underwriter's Information"). (v) At the Effective Date and at all times subsequent thereto, up to and including the Closing Date and, if applicable, the Option Closing Date, the Registration Statement and any post-effective amendment thereto (A) complied and will comply in all material respects with the requirements of the 1933 Act, the 1933 Act Regulations and the Trust Indenture Act (and the rules and regulations thereunder) and (B) did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, not misleading. At the Effective Date and at all times when the Prospectus is required to be delivered in connection with offers and sales of Designated Preferred Securities, including, without limitation, the Closing Date and, if applicable, the Option Closing Date, the Prospectus, as amended or supplemented, (A) complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and the Trust Indenture Act (and the rules and regulations thereunder) and (B) did not contain and will not contain an untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty does not apply to Underwriter's Information. (vi) (A) The Company is duly organized, validly existing and in good standing under the laws of the State of Michigan, with full corporate and other power and authority to own, lease and operate its properties and conduct its business as described in and contemplated by the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) and as currently being conducted and is 6 7 duly registered as a bank holding company under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). (B) The Trust has been duly created and is validly existing as a statutory business trust in good standing under the Delaware Business Trust Act with the power and authority (trust and other) to own its property and conduct its business as described in the Registration Statement and Prospectus, to issue and sell its common securities (the "Common Securities") to the Company pursuant to the Trust Agreement, to issue and sell the Designated Preferred Securities, to enter into and perform its obligations under this Agreement and to consummate the transactions herein contemplated; the Trust has no subsidiaries and is duly qualified to transact business and is in good standing in each jurisdiction in which the conduct of its business or the ownership of its property requires such qualification, except to the extent that the failure to be so qualified or be in good standing would not have a material adverse effect on the Trust; the Trust has conducted and will conduct no business other than the transactions contemplated by this Agreement and described in the Prospectus; the Trust is not a party to or bound by any agreement or instrument other than this Agreement, the Trust Agreement and the agreements and instruments contemplated by the Trust Agreement and described in the Prospectus; the Trust has no liabilities or obligations other than those arising out of the transactions contemplated by this Agreement and the Trust Agreement and described in the Prospectus; the Trust is not a party to or subject to any action, suit or proceeding of any nature; the Trust is not, and at the Closing Date or any Option Closing Date will not be, classified as an association taxable as a corporation for United States federal income tax purposes; and the Trust is, and as of the Closing Date or any Option Closing Date will be, treated as a consolidated subsidiary of the Company pursuant to generally accepted accounting principles. (vii) The Company has five subsidiaries. They are Independent Bank, Independent Bank West Michigan, Independent Bank South Michigan, Independent Bank East Michigan (the "Banks") and the Trust. The Company does not own or control, directly or indirectly, more than 5% of any class of equity security of any corporation, association or other entity other than the Banks, Independent Title Services, Inc., IBC Financial Services, Inc. and the Trust. Each of the Banks is a Michigan State Bank duly incorporated, validly existing and in good standing under the laws of Michigan. Each Bank has full corporate and other power and authority to own, lease and operate its properties and to conduct its business as described in and contemplated by the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent 7 8 Preliminary Prospectus) and as currently being conducted. Each Bank is a member of the Federal Reserve System, and no proceedings for the termination or revocation of such membership are pending or, to the knowledge of the Offerors, threatened. The deposit accounts of each Bank are insured by the Bank Insurance Fund administered by the Federal Deposit Insurance Corporation (the "FDIC") up to the maximum amount provided by law, except to the extent the Prospectus discloses such deposit accounts are insured by the Savings Association Insurance Fund administered by the FDIC ("SAIF") and to such extent the deposit accounts are so insured up to the maximum amount provided by law; and no proceedings for the modification, termination or revocation of any such insurance are pending or, to the knowledge of the Offerors, threatened. (viii) The Company and each of the Banks is duly qualified to transact business as a foreign corporation and is in good standing in each other jurisdiction in which it owns or leases property or conducts its business so as to require such qualification and in which the failure to so qualify would, individually or in the aggregate, have a material adverse effect on the condition (financial or otherwise), earnings, business, prospects or results of operations of the Company and the Banks on a consolidated basis. All of the issued and outstanding shares of capital stock of the Banks (A) have been duly authorized and are validly issued, (B) are fully paid and nonassessable except to the extent such shares may be deemed assessable under 12 U.S.C. Section 55 or 12 U.S.C. Section 1831o, and (C) except as disclosed in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), are directly owned by the Company free and clear of any security interest, mortgage, pledge, lien, encumbrance, restriction upon voting or transfer, preemptive rights, claim or equity. Except as disclosed in the Prospectus, there are no outstanding rights, warrants or options to acquire or instruments convertible into or exchangeable for any capital stock or equity securities of the Offerors or the Banks. (ix) The capital stock of the Company and the equity securities of the Trust conform to the description thereof contained in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus). The outstanding shares of capital stock and equity securities of each Offeror have been duly authorized and validly issued and are fully paid and nonassessable, and no such shares were issued in violation of the preemptive or similar rights of any security holder of an Offeror; no person has any preemptive or similar right to purchase any shares of capital stock or equity securities of the Offerors. Except as disclosed in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), there are no outstanding rights, options or warrants to acquire any securities of the Offerors other than options issued under the 8 9 Company's Incentive Share Grant Plan, Stock Option Plans and Dividend Reinvestment Plan, and there are no outstanding securities convertible into or exchangeable for any such securities. (x) (A) The Trust has all requisite power and authority to issue, sell and deliver the Designated Preferred Securities in accordance with and upon the terms and conditions set forth in this Agreement, the Trust Agreement, the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus). All corporate and trust action required to be taken by the Offerors for the authorization, issuance, sale and delivery of the Designated Preferred Securities in accordance with such terms and conditions has been validly and sufficiently taken. The Designated Preferred Securities, when delivered in accordance with this Agreement, will be duly and validly issued and outstanding, will be fully paid and nonassessable undivided beneficial interests in the assets of the Trust, will be entitled to the benefits of the Trust Agreement, will not be issued in violation of or subject to any preemptive or similar rights, and will conform to the description thereof in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) and the Trust Agreement. None of the Designated Preferred Securities, immediately prior to delivery, will be subject to any security interest, lien, mortgage, pledge, encumbrance, restriction upon voting or transfer, preemptive rights, claim, equity or other defect. (B) The Debentures have been duly and validly authorized, and, when duly and validly executed, authenticated and issued as provided in the Indenture and delivered to the Trust pursuant to the Trust Agreement, will constitute valid and legally binding obligations of the Company entitled to the benefits of the Indenture and will conform to the description thereof contained in the Prospectus. (C) The Guarantee has been duly and validly authorized, and, when duly and validly executed and delivered to the guarantee trustee for the benefit of the Trust, will constitute a valid and legally binding obligation of the Company and will conform to the description thereof contained in the Prospectus. (xi) The Offerors and the Banks have complied in all material respects with all federal, state and local statutes, regulations, ordinances and rules applicable to the ownership and operation of their properties or the conduct of their businesses as described in and contemplated by the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) and as currently being 9 10 conducted. (xii) The Offerors and the Banks have all material permits, easements, consents, licenses, franchises and other governmental and regulatory authorizations from all appropriate federal, state, local or other public authorities ("Permits") as are necessary to own and lease their properties and conduct their businesses in the manner described in and contemplated by the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) and as currently being conducted in all material respects. All such Permits are in full force and effect and each of the Offerors and the Banks are in all material respects complying therewith, and no event has occurred that allows, or after notice or lapse of time would allow, revocation or termination thereof or will result in any other material impairment of the rights of the holder of any such Permit, subject in each case to such qualification as may be adequately disclosed in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus). Such Permits contain no restrictions that would materially impair the ability of the Company or the Banks to conduct their businesses in the manner consistent with their past practices. Neither the Offerors nor the Banks have received notice or otherwise has knowledge of any proceeding or action relating to the revocation or modification of any such Permit. (xiii) Neither of the Offerors nor any of the Banks is in breach or violation of their corporate charter, by-laws or other governing documents (including without limitation, the Trust Agreement). Neither of the Offerors nor any of the Banks are, and to the knowledge of the Offerors no other party is, in violation, breach or default (with or without notice or lapse of time or both) in the performance or observance of any term, covenant, agreement, obligation, representation, warranty or condition contained in (A) any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease, franchise, license, Permit or any other agreement or instrument to which it is a party or by which it or any of its properties may be bound, which such breach, violation or default could have material adverse consequences to the Offerors and the Banks on a consolidated basis, and to the knowledge of the Offerors, no other party has asserted that the Offerors or any of the Banks is in such violation, breach or default (provided that the foregoing shall not apply to defaults by borrowers from the Banks), or (B) except as disclosed in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), any order, decree, judgment, rule or regulation of any court, arbitrator, government, or governmental agency or instrumentality, domestic or foreign, having jurisdiction over the Offerors or the Banks or any of their respective properties the breach, violation or default of which could have a material 10 11 adverse effect on the condition, financial or otherwise, earnings, affairs, business, prospects, or results of operations of the Offerors and the Banks on a consolidated basis. (xiv) The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement, the Trust Agreement, the Registration Statement and the Prospectus (or, if the Prospectus in not in existence, the most recent Preliminary Prospectus) do not and will not conflict with, result in the creation or imposition of any material lien, claim, charge, encumbrance or restriction upon any property or assets of the Offerors or the Banks or the Designated Preferred Securities pursuant to, constitute a breach or violation of, or constitute a default under, with or without notice or lapse of time or both, any of the terms, provisions or conditions of the charter or by-laws of the Company or the Banks, the Trust Agreement, the Guarantee, the Indenture, any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease, franchise, license, Permit or any other agreement or instrument to which the Offerors or the Banks is a party or by which any of them or any of their respective properties may be bound or any order, decree, judgment, rule or regulation of any court, arbitrator, government, or governmental agency or instrumentality, domestic or foreign, having jurisdiction over the Offerors or the Banks or any of their respective properties which conflict, creation, imposition, breach, violation or default would have either singly or in the aggregate a material adverse effect on the condition, financial or otherwise, earnings, affairs, business, prospects or results of operations of the Offerors and the Banks on a consolidated basis. No authorization, approval, consent or order of, or filing, registration or qualification with, any person (including, without limitation, any court, governmental body or authority) is required in connection with the transactions contemplated by this Agreement, the Trust Agreement, the Indenture, the Guarantee, the Registration Statement and the Prospectus (or such Preliminary Prospectus), except such as may be required under the 1933 Act, and such as may be required under state securities laws in connection with the purchase and distribution of the Designated Preferred Securities by the Underwriter. No authorization, approval, consent or order of or filing, registration or qualification with, any person (including, without limitation, any court, governmental body or authority) is required in connection with the transactions contemplated by this Agreement, the Trust Agreement, the Indenture, the Guarantee, the Registration Statement and the Prospectus, except such as have been obtained under the 1933 Act, and such as may be required under state securities laws or Interpretations or Rules of the National Association of Securities Dealers, Inc. ("NASD") in connection with the purchase and distribution of the Designated Preferred Securities by the Underwriter. 11 12 (xv) The Offerors have all requisite corporate power and authority to enter into this Agreement and this Agreement has been duly and validly authorized, executed and delivered by the Offerors and constitutes the legal, valid and binding agreement of the Offerors, enforceable against the Offerors in accordance with its terms, except as the enforcement thereof may be limited by general principles of equity and by bankruptcy or other laws relating to or affecting creditors' rights generally and except as any indemnification or contribution provisions thereof may be limited under applicable securities laws. Each of the Indenture, the Trust Agreement, the Guarantee and the Agreement as to Expenses and Liabilities (the "Expense Agreement") has been duly authorized by the Company, and, when executed and delivered by the Company on the Closing Date, each of said agreements will constitute a valid and legally binding obligation of the Company and will be enforceable against the Company in accordance with its terms, except as the enforcement thereof may be limited by general principles of equity and by bankruptcy or other laws relating to or affecting creditors' rights generally and except as any indemnification or contribution provisions thereof may be limited under applicable securities laws. Each of the Indenture, the Trust Agreement and the Guarantee has been duly qualified under the Trust Indenture Act and will conform to the description thereof contained in the Prospectus. (xvi) The Company and the Banks have good and marketable title in fee simple to all real property and good title to all personal property owned by them and material to their business, in each case free and clear of all security interests, liens, mortgages, pledges, encumbrances, restrictions, claims, equities and other defects except such as are referred to in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) or such as do not materially affect the value of such property in the aggregate and do not materially interfere with the use made or proposed to be made of such property; and all of the leases under which the Company or the Banks hold real or personal property are valid, existing and enforceable leases and in full force and effect with such exceptions as are not material and do not materially interfere with the use made or proposed to be made of such real or personal property, and neither the Company nor the Banks is in default in any material respect of any of the terms or provisions of any leases. (xvii) KPMG Peat Marwick LLP, who have certified certain of the consolidated financial statements of the Company and the Banks including the notes thereto, included in the Registration Statement and Prospectus, are independent public accountants with respect to the Offerors and the Banks, as required by the 1933 Act and the 1933 Act Regulations. 12 13 (xviii) The consolidated financial statements including the notes thereto, included in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) with respect to the Company and the Banks comply in all material respects with the 1933 Act and the 1933 Act Regulations and present fairly the consolidated financial position of the Company and the Banks as of the dates indicated and the consolidated results of operations, cash flows and stockholders' equity of the Company and the Banks for the periods specified and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis. The selected and summary consolidated financial data concerning the Offerors and the Banks included in the Registration Statement and the Prospectus (or such Preliminary Prospectus) comply in all material respects with the 1933 Act and the 1933 Act Regulations, present fairly the information set forth therein, and have been compiled on a basis consistent with that of the consolidated financial statements of the Offerors and the Banks in the Registration Statement and the Prospectus (or such Preliminary Prospectus). The other financial, statistical and numerical information included in the Registration Statement and the Prospectus (or such Preliminary Prospectus) comply in all material respects with the 1933 Act and the 1933 Act Regulations, present fairly the information shown therein, and to the extent applicable have been compiled on a basis consistent with the consolidated financial statements of the Company and the Banks included in the Registration Statement and the Prospectus (or such Preliminary Prospectus). (xix) Since the respective dates as of which information is given in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), except as otherwise stated therein: (A) neither of the Offerors nor any of the Banks have sustained any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree which is material to the condition (financial or otherwise), earnings, business, prospects or results of operations of the Offerors and the Banks on a consolidated basis; (B) there has not been any material adverse change in, or any development which is reasonably likely to have a material adverse effect on, the condition (financial or otherwise), earnings, business, prospects or results of operations of the Offerors and the Banks on a consolidated basis, whether or not arising in the ordinary course of 13 14 business; (C) neither of the Offerors nor any of the Banks have incurred any liabilities or obligations, direct or contingent, or entered into any material transactions, other than in the ordinary course of business which is material to the condition (financial or otherwise), earnings, business, prospects or results of operations of the Offerors and the Banks on a consolidated basis; (D) other than the Company's fourth quarter dividend declared on _____, 1996 and paid to the holders of its common securities, neither of the Offerors have declared or paid any dividend, and neither of the Offerors nor any of the Banks have become delinquent in the payment of principal or interest on any outstanding borrowings; and (E) there has not been any change in the capital stock (except for shares of the Company's common stock issued under its Dividend Reinvestment Plan and the exercise of employee stock options issued under the Company's Incentive Share Grant Plan and Stock Option Plans, and disclosed as outstanding), equity securities, long-term debt, obligations under capital leases or, other than in the ordinary course of business and other than the Company's short-term indebtedness to Northern Trust Company not to exceed $_________ (the "Bridge Loan"), short-term borrowings of the Offerors or the Banks. (xx) Except as set forth in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), no charge, investigation, action, suit or proceeding is pending or, to the knowledge of the Offerors, threatened, against or affecting the Offerors or the Banks or any of their respective properties before or by any court or any regulatory, administrative or governmental official, commission, board, agency or other authority or body, or any arbitrator, wherein an unfavorable decision, ruling or finding could have a material adverse effect on the consummation of this Agreement or the transactions contemplated herein or the condition (financial or otherwise), earnings, affairs, business, prospects or results of operations of the Offerors and the Banks on a consolidated basis or which is required to be disclosed in the Registration Statement or the Prospectus (or such Preliminary Prospectus) and is not so disclosed. (xxi) There are no contracts or other documents required to be filed as exhibits to the Registration Statement by the 1933 Act or the 1933 14 15 Act Regulations or the Trust Indenture Act (or any rules or regulations thereunder) which have not been filed as exhibits or incorporated by reference to the Registration Statement, or that are required to be summarized in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) that are not so summarized. (xxii) Neither of the Offerors has taken, directly or indirectly, any action designed to result in or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Offerors to facilitate the sale or resale of the Designated Preferred Securities, and neither of the Offerors is aware of any such action taken or to be taken by any affiliate of the Offerors. (xxiii) The Offerors and the Banks own, or possess adequate rights to use, all patents, copyrights, trademarks, service marks, trade names and other rights necessary to conduct the businesses now conducted by them in all material respects or as described in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) and neither the Offerors nor the Banks have received any notice of infringement or conflict with asserted rights of others with respect to any patents, copyrights, trademarks, service marks, trade names or other rights which, individually or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the condition (financial or otherwise), earnings, affairs, business, prospects or results of operations of the Offerors and the Banks on a consolidated basis, and the Offerors do not know of any basis for any such infringement or conflict. (xxiv) Except as adequately disclosed in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), no labor dispute involving the Company or the Banks exists or, to the knowledge of the Offerors, is imminent which might be expected to have a material adverse effect on the condition (financial or otherwise), earnings, affairs, business, prospects or results of operations of the Offerors and the Banks on a consolidated basis or which is required to be disclosed in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus). Neither the Company nor the Banks have received notice of any existing or threatened labor dispute by the employees of any of its principal suppliers, customers or contractors which might be expected to have a material adverse effect on the condition (financial or otherwise), earnings, affairs, business, prospects or results of operations of the Company and the Banks on a consolidated basis. (xxv) The Offerors and the Banks have timely and properly prepared and filed all necessary federal, state, local and foreign tax returns 15 16 which are required to be filed and have paid all taxes shown as due thereon and have paid all other taxes and assessments to the extent that the same shall have become due, except such as are being contested in good faith or where the failure to so timely and properly prepare and file would not have a material adverse effect on the condition (financial or otherwise), earnings, affairs, business, prospects or results of operations of the Offerors and the Banks on a consolidated basis. The Offerors have no knowledge of any tax deficiency which has been or might be assessed against the Offerors or the Banks which, if the subject of an unfavorable decision, ruling or finding, would have a material adverse effect on the condition (financial or otherwise), earnings, affairs, business, prospects or results of operations of the Offerors and the Banks on a consolidated basis. (xxvi) Each of the material contracts, agreements and instruments described or referred to in the Registration Statement or the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) and each contract, agreement and instrument filed as an exhibit to the Registration Statement is in full force and effect and is the legal, valid and binding agreement of the Offerors or the Banks, enforceable in accordance with its terms, except as the enforcement thereof may be limited by general principles of equity and by bankruptcy or other laws relating to or affecting creditors' rights generally. Except as disclosed in the Prospectus (or such Preliminary Prospectus), to the knowledge of the Offerors, no other party to any such agreement is (with or without notice or lapse of time or both) in breach or default in any material respect thereunder. (xxvii) No relationship, direct or indirect, exists between or among the Offerors or the Banks, on the one hand, and the directors, officers, trustees, stockholders, customers or suppliers of the Offerors or the Banks, on the other hand, which is required to be described in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus) which is not adequately described therein. (xxviii) No person has the right to request or require the Offerors or the Banks to register any securities for offering and sale under the 1933 Act by reason of the filing of the Registration Statement with the Commission or the issuance and sale of the Designated Preferred Securities except as adequately disclosed in the Registration Statement and the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus). (xxix) The Designated Preferred Securities have been approved for quotation on the Nasdaq National Market subject to official notice of 16 17 issuance. (xxx) Except as described in the Prospectus (or, if the Prospectus is not in existence, the most recent Preliminary Prospectus), there are no contractual encumbrances or restrictions or material legal restrictions, on the ability of the Banks (A) to pay dividends or make any other distributions on its capital stock or to pay any indebtedness owed to the Company, (B) to make any loans or advances to, or investments in, the Company or (C) to transfer any of its property or assets to the Company. (xxxi) Neither of the Offerors is an "investment company" within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act"). (xxxii) The Offerors have not distributed and will not distribute prior to the Closing Date any prospectus in connection with the Offering, other than a Preliminary Prospectus, the Prospectus, the Registration Statement and the other materials permitted by the 1933 Act and the 1933 Act Regulations and reviewed by the Underwriter. 3. OFFERING BY THE UNDERWRITER. After the Registration Statement becomes effective or, if the Registration Statement is already effective, after this Agreement becomes effective, the Underwriter proposes to offer the Firm Preferred Securities for sale to the public upon the terms and conditions set forth in the Prospectus. The Underwriter may from time to time thereafter reduce the public offering price and change the other selling terms, provided the proceeds to the Trust shall not be reduced as a result of such reduction or change. The Underwriter may reserve and sell such of the Designated Preferred Securities purchased by the Underwriter as the Underwriter may elect to dealers chosen by it (the "Selected Dealers") at the public offering price set forth in the Prospectus less the applicable Selected Dealers' concessions set forth therein, for re-offering by Selected Dealers to the public at the public offering price. The Underwriter may allow, and Selected Dealers may re-allow, a concession set forth in the Prospectus to certain other brokers and dealers. 4. CERTAIN COVENANTS OF THE OFFERORS. The Offerors jointly and severally covenant with the Underwriter as follows: (a) The Offerors shall use their best efforts to cause the Registration Statement and any amendments thereto, if not effective at the time of execution of this Agreement, to become effective as promptly as possible. If the Registration Statement has become or becomes effective pursuant to Rule 430A and information has been omitted therefrom in reliance on Rule 430A, then, the 17 18 Offerors will prepare and file in accordance with Rule 430A and Rule 424(b) copies of the Prospectus or, if required by Rule 430A, a post-effective amendment to the Registration Statement (including the Prospectus) containing all information so omitted and will provide evidence satisfactory to the Underwriter of such timely filing. (b) The Offerors shall notify the Underwriter immediately, and confirm such notice in writing: (i) when the Registration Statement, or any post-effective amendment to the Registration Statement, has become effective, or when the Prospectus or any supplement to the Prospectus or any amended Prospectus has been filed; (ii) of the receipt of any comments or requests from the Commission; (iii) of any request of the Commission to amend or supplement the Registration Statement, any Preliminary Prospectus or the Prospectus or for additional information; and (iv) of the issuance by the Commission or any state or other regulatory body of any stop order or other order suspending the effectiveness of the Registration Statement, preventing or suspending the use of any Preliminary Prospectus or the Prospectus, or suspending the qualification of any of the Designated Preferred Securities for offering or sale in any jurisdiction or the institution or threat of institution of any proceedings for any of such purposes. The Offerors shall use their best efforts to prevent the issuance of any such stop order or of any other such order and if any such order is issued, to cause such order to be withdrawn or lifted as soon as possible. (c) The Offerors shall furnish to the Underwriter, from time to time without charge, as soon as available, as many copies as the Underwriter may reasonably request of (i) the registration statement as originally filed and of all amendments thereto, in executed form, including exhibits, whether filed before or after the Registration Statement becomes effective, (ii) all exhibits and documents incorporated therein or filed therewith, (iii) all consents and certificates of experts in executed form, (iv) each Preliminary Prospectus and all amendments and supplements thereto, and (v) the Prospectus, and all amendments and supplements thereto. (d) During the time when a prospectus is required to be delivered under the 1933 Act, the Offerors shall comply to the best of their ability with the 18 19 1933 Act and the 1933 Act Regulations and the 1934 Act and the 1934 Act Regulations so as to permit the completion of the distribution of the Designated Preferred Securities as contemplated herein and in the Trust Agreement and the Prospectus. The Offerors shall not file any amendment to the registration statement as originally filed or to the Registration Statement and shall not file any amendment thereto or make any amendment or supplement to any Preliminary Prospectus or to the Prospectus of which the Underwriter shall not previously have been advised in writing and provided a copy a reasonable time prior to the proposed filings thereof or to which the Underwriter or the Underwriter's counsel shall reasonably object. If it is necessary, in the Underwriter's reasonable opinion or in the reasonable opinion of the Underwriter's counsel to amend or supplement the Registration Statement or the Prospectus in connection with the distribution of the Designated Preferred Securities, the Offerors shall forthwith amend or supplement the Registration Statement or the Prospectus, as the case may be, by preparing and filing with the Commission, and furnishing to the Underwriter, such number of copies as the Underwriter may reasonably request of an amendment or amendments of, or a supplement or supplements to, the Registration Statement or the Prospectus, as the case may be (in form and substance reasonably satisfactory to the Underwriter and the Underwriter's counsel. If any event shall occur as a result of which it is necessary to amend or supplement the Prospectus to correct an untrue statement of a material fact or to include a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or if for any reason it is necessary at any time to amend or supplement the Prospectus to comply with the 1933 Act and the 1933 Act Regulations, the Offerors shall, subject to the second sentence of this subsection (d), forthwith amend or supplement the Prospectus by preparing and filing with the Commission, and furnishing to the Underwriter, such number of copies as the Underwriter may reasonably request of an amendment or amendments of, or a supplement or supplements to, the Prospectus (in form and substance satisfactory to the Underwriter and the Underwriter's counsel so that, as so amended or supplemented, the Prospectus shall not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (e) The Offerors shall cooperate with the Underwriter and the Underwriter's counsel in order to qualify the Designated Preferred Securities for offering and sale under the securities or blue sky laws of such jurisdictions as the Underwriter may reasonably request and shall continue such qualifications in effect so long as may be advisable for distribution of the Designated Preferred Securities; provided, however, that the Offerors shall not be required to qualify to do business as a foreign corporation or file a general consent to service of process in any jurisdiction in connection with the foregoing. The Offerors shall file such statements and reports as may be required by the laws of each jurisdiction in which the Designated Preferred Securities have been qualified as above. The Offerors will 19 20 notify the Underwriter immediately of, and confirm in writing, the suspension of qualification of the Designated Preferred Securities or threat thereof in any jurisdiction. (f) The Offerors shall make generally available to their security holders in the manner contemplated by Rule 158 of the 1933 Act Regulations and furnish to the Underwriter as soon as practicable, but in any event not later than 16 months after the Effective Date, a consolidated earnings statement of the Offerors conforming with the requirements of Section 11(a) of the 1933 Act and Rule 158. (g) The Offerors shall use the net proceeds from the sale of the Designated Preferred Securities to be sold by the Trust hereunder in the manner specified in the Prospectus under the caption "Use of Proceeds." (h) For five years from the Effective Date, the Offerors shall furnish to the Underwriter copies of all reports and communications (financial or otherwise) furnished by the Offerors to the holders of the Designated Preferred Securities as a class, copies of all reports and financial statements filed with or furnished to the Commission (other than portions for which confidential treatment has been obtained from the Commission) or with any national securities exchange or the Nasdaq National Market as the Underwriter may reasonably request, other than such documents, reports and information for which the Offerors has the legal obligation not to reveal to the Underwriter. (i) For a period of 180 days from the date hereof, the Offerors shall not, directly or indirectly, offer for sale, sell or agree to sell or otherwise dispose of any Designated Preferred Securities, any other beneficial interests in the assets of the Trust or any securities of the Trust or the Company that are substantially similar to the Designated Preferred Securities, including any guarantee of such beneficial interests or substantially similar securities, or securities convertible into or exchangeable for or that represent the right to receive any such beneficial interest or substantially similar securities, without the Underwriter's prior written consent. (j) The Offerors shall use their best efforts to cause the Designated Preferred Securities to become quoted on the Nasdaq National Market, or in lieu thereof a national securities exchange, and to remain so quoted for at least five years from the Effective Date or for such shorter period as may be specified in a written consent of the Underwriter, provided this shall not prevent the Company from redeeming the Designated Preferred Securities pursuant to the terms of the Trust Agreement. If the Designated Preferred Securities are exchanged for Debentures, the Company will use its best efforts to have the Debentures promptly listed on the Nasdaq National Market or other organization on which the Designated Preferred Securities are then listed, and to have the Debentures promptly registered under the Exchange Act. 20 21 (k) Subsequent to the date of this Agreement and through the date which is the later of (i) the day following the date on which the Underwriter's option to purchase the Option Preferred Securities shall expire or (ii) the day following the Option Closing Date with respect to any Option Preferred Securities that the Underwriter shall elect to purchase, except as described in or contemplated by the Prospectus, neither the Offerors nor the Banks shall take any action (or refrain from taking any action) which will result in the Offerors or the Banks incurring any material liability or obligation, direct or contingent, or enter into any material transaction, except in the ordinary course of business, and there will not be any material change in the financial position, capital stock, or any material increase in long-term debt, obligations under capital leases or short-term borrowings of the Offerors and the Banks on a consolidated basis. (l) The Offerors shall not, for a period of 180 days after the date hereof, without the prior written consent of the Underwriter, purchase, redeem or call for redemption, or prepay or give notice of prepayment (or announce any redemption or call for redemption, or any repayment or notice of prepayment) of any of the Offerors' securities, provided that the foregoing shall not prevent an employee or director from delivering the Company's securities in payment of the exercise price of options issued under the Company's Incentive Share Grant Plan and Stock Option Plans. (m) The Offerors shall not take, directly or indirectly, any action designed to result in or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Offerors to facilitate the sale or resale of the Designated Preferred Securities and the Offerors are not aware of any such action taken or to be taken by any affiliate of the Offerors. (n) Prior to the Closing Date (and, if applicable, the Option Closing Date), the Offerors will not issue any press release or other communication directly or indirectly or hold any press conference with respect to the Offerors, the Banks or the offering of the Designated Preferred Securities (the "Offering") without the Underwriter's prior written consent which will not be unreasonably withheld. 5. PAYMENT OF EXPENSES. Whether or not this Agreement is terminated or the sale of the Designated Preferred Securities to the Underwriter is consummated, the Company covenants and agrees that it will pay or cause to be paid (directly or by reimbursement) all costs and expenses incident to the performance of the obligations of the Offerors under this Agreement, including: (a) the preparation, printing, filing, delivery and shipping of the initial registration statement, the Preliminary Prospectus or Prospectuses, the 21 22 Registration Statement and the Prospectus and any amendments or supplements thereto, and the printing, delivery and shipping of this Agreement and any other underwriting documents (including, without limitation, selected dealers agreements), the certificates for the Designated Preferred Securities and the Preliminary and Final Blue Sky Memoranda and any legal investment surveys and any supplements thereto; (b) all fees, expenses and disbursements of the Offerors' counsel and accountants; (c) all reasonable fees and expenses incurred in connection with the qualification of the Designated Preferred Securities, Debentures and the Guarantee under the securities or blue sky laws of such jurisdictions as the Underwriter may request, including all filing fees and reasonable fees and disbursements of counsel for the Underwriter in connection therewith, including, without limitation, in connection with the preparation of the Preliminary and Final Blue Sky Memoranda and any legal investment surveys and any supplements thereto; (d) all fees and expenses incurred in connection with filings made with the NASD; (e) any applicable fees and other expenses incurred in connection with the listing of the Designated Preferred Securities and, if applicable, the Guarantee and the Debentures on the Nasdaq National Market; (f) the cost of furnishing to the Underwriter copies of the initial registration statements, any Preliminary Prospectus, the Registration Statement and the Prospectus and all amendments or supplements thereto; (g) the costs and charges of any transfer agent or registrar and the fees and disbursements of counsel for any transfer agent or registrar; (h) all costs and expenses (including stock transfer taxes) incurred in connection with the printing, issuance and delivery of the Designated Preferred Securities to the Underwriter; (i) all expenses incident to the preparation, execution and delivery of the Trust Agreements, the Indenture and the Guarantee; and (j) all other costs and expenses incident to the performance of the obligations of the Company hereunder and under the Trust Agreement that are not otherwise specifically provided for in this Section 5. If the sale of Designated Preferred Securities contemplated by this 22 23 Agreement is not completed for any reason whatsoever, including without limitation if this Agreement is terminated by the Offerors or by the Underwriter for any reason whatsoever, whether or not such termination is allowable hereunder, the Company will pay the Underwriter its accountable out-of-pocket expenses in connection herewith or in contemplation of the performance of the Underwriter's obligations hereunder, including without limitation travel expenses, reasonable fees, expenses and disbursements of counsel or other out-of-pocket expenses incurred by the Underwriter in connection with any discussion of the Offering or the contents of the Registration Statement, any investigation of the Offerors and the Banks, or any preparation for the marketing, purchase, sale or delivery of the Designated Preferred Securities, in each case following presentation of reasonably detailed invoices therefor. If the sale of Designated Preferred Securities contemplated by this Agreement is completed, the Company shall not be responsible for payment of fees or disbursements of counsel for the Underwriter other than in accordance with paragraph (c) above, or for the reimbursement of any expenses of the Underwriter, including but not limited to any advertising expenses related to any offers made by the Underwriter. 6. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations of the Underwriter to purchase and pay for the Firm Preferred Securities and, following exercise of the option granted by the Offerors in Section 1 of this Agreement, the Option Preferred Securities, are subject, in the Underwriter's sole discretion, to the accuracy of and compliance with the representations and warranties and agreements of the Offerors herein as of the date hereof and as of the Closing Date (or in the case of the Option Preferred Securities, if any, as of the Option Closing Date), to the accuracy of the written statements of the Offerors made pursuant to the provisions hereof, to the performance by the Offerors of their covenants and obligations hereunder and to the following additional conditions: (a) If the Registration Statement or any amendment thereto filed prior to the Closing Date has not been declared effective prior to the time of execution hereof, the Registration Statement shall become effective not later than 10:00 a.m., St. Louis time, on the first business day following the time of execution of this Agreement, or at such later time and date as the Underwriter may agree to in writing. If required, the Prospectus and any amendment or supplement thereto shall have been timely filed in accordance with Rule 424(b) and Rule 430A under the 1933 Act and Section 4(a) hereof. No stop order suspending the effectiveness of the Registration Statement or any amendment or supplement thereto shall have been issued under the 1933 Act or any applicable state securities laws and no proceedings for that purpose shall have been instituted or shall be pending, or, to the knowledge of the Offerors the Underwriter, shall be contemplated by the Commission or any state authority. Any request on the part 23 24 of the Commission or any state authority for additional information (to be included in the Registration Statement or Prospectus or otherwise) shall have been disclosed to the Underwriter and complied with to the Underwriter's satisfaction and to the satisfaction of the Underwriter's counsel. (b) The Underwriter shall not have advised the Company at or before the Closing Date (and, if applicable, the Option Closing Date) that the Registration Statement or any post-effective amendment thereto, or the Prospectus or any amendment or supplement thereto, contains an untrue statement of a fact which, in the Underwriter's opinion, is material or omits to state a fact which, in the Underwriter's opinion, is material and is required to be stated therein or is necessary to make statements therein (in the case of the Prospectus or any amendment or supplement thereto, in light of the circumstances under which they were made) not misleading. (c) All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the Trust Agreement, and the Designated Preferred Securities, and the authorization and form of the Registration Statement and Prospectus, other than financial statements and other financial data, and all other legal matters relating to this Agreement and the transactions contemplated hereby or by the Trust Agreement shall be satisfactory in all respects to the Underwriter's counsel, and the Offerors and the Banks shall have furnished to such counsel all documents and information relating thereto that they may reasonably request to enable them to pass upon such matters. (d) Varnum, Riddering, Schmidt & Howlett LLP, counsel for the Offerors, shall have furnished to the Underwriter their signed opinion, dated the Closing Date or the Option Closing Date, as the case may be, in form and substance satisfactory to the Underwriter's counsel, to the effect that: (i) The Company has been duly incorporated and is validly existing and in good standing under the laws of the State of Michigan, and is duly registered as a bank holding company under the BHC Act. Each of the Banks is a state banking corporation duly incorporated, validly existing and in good standing under the laws of Michigan. Each of the Banks is a member of the Federal Reserve System, and to the knowledge of such counsel no proceedings for the termination or revocation of such membership are pending or threatened. The deposit accounts of the Banks are insured by the FDIC up to the maximum amount provided by law, except to the extent the Prospectus discloses such deposit accounts are insured by SAIF and to such extent the deposit accounts are so insured up to the maximum amount provided by law; and to the knowledge of such counsel no proceedings for the termination or revocation of any such insurance or such membership are pending or threatened. Each of the Company and the Banks has full 24 25 corporate power and authority to own or lease its properties and to conduct its business as such business is described in the Prospectus and is currently conducted in all material respects. All outstanding shares of capital stock of the Banks have been duly authorized and validly issued and are fully paid and nonassessable except to the extent such shares may be deemed assessable under Section 201 of the Michigan Banking Code of 1969, as amended (M.C.L.A. Section 487.501) or 12 U.S.C. Section 55 or 12 U.S.C. Section 1831o and, to the best of such counsel's knowledge, except as disclosed in the Prospectus, there are no outstanding rights, options or warrants to purchase any such shares or securities convertible into or exchangeable for any such shares. (ii) The capital stock, Debentures and Guarantee of the Company and the equity securities of the Trust conform to the description thereof contained in the Prospectus in all material respects. The capital stock of the Company authorized and issued as of September 30, 1996 is as set forth under the caption "Capitalization" in the Prospectus, has been duly authorized and validly issued, is fully paid and nonassessable. The form of certificates to evidence the Designated Preferred Securities has been approved by the Trust and is in due and proper form and complies with all applicable requirements. To the best of such counsel's knowledge, there are no outstanding rights, options or warrants to purchase, no other outstanding securities convertible into or exchangeable for, and no commitments, plans or arrangements to issue, any shares of capital stock of the Company or equity securities of the Trust, except as described in the Prospectus. (iii) The issuance, sale and delivery of the Designated Preferred Securities and Debentures in accordance with the terms and conditions of this Agreement and the Indenture have been duly authorized by all necessary actions of the Offerors. The sale and delivery of the Guarantee pursuant to its terms has been duly authorized by all necessary actions of the Company. All of the Designated Preferred Securities have been duly and validly authorized and, when delivered in accordance with this Agreement will be duly and validly issued, fully paid and nonassessable, and will conform to the description thereof in the Registration Statement, the Prospectus and the Trust Agreement. The Designated Preferred Securities have been approved for quotation on the Nasdaq National Market subject to official notice of issuance. There are no preemptive or other rights to subscribe for or to purchase, and other than as disclosed in the Prospectus no restrictions upon the voting or transfer of, any shares of capital stock or equity securities of the Offerors or the Banks pursuant to the corporate charter, by-laws or other governing documents (including without limitation, the Trust Agreement) of the Offerors or the Banks, or, to the best of such counsel's knowledge, any agreement or other instrument to which either 25 26 Offeror or any of the Banks is a party or by which either Offeror or any of the Banks may be bound. (iv) The Offerors have all requisite corporate and trust power to enter into and perform their obligations under this Agreement, and this Agreement has been duly and validly authorized, executed and delivered by the Offerors and constitutes the legal, valid and binding obligations of the Offerors enforceable in accordance with its terms, except as the enforcement hereof or thereof may be limited by general principles of equity and by bankruptcy or other laws relating to or affecting creditors' rights generally, and except as the indemnification and contribution provisions hereof may be limited under applicable laws and certain remedies may not be available in the case of a non-material breach. (v) Each of the Indenture, the Trust Agreement and the Guarantee has been duly qualified under the Trust Indenture Act, has been duly authorized, executed and delivered by the Company, and is a valid and legally binding obligation of the Company enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, receivership, moratorium and other laws affecting the rights and remedies of creditors generally and of general principles of equity; (vi) The Debentures have been duly authorized, executed, authenticated and delivered by the Company, are entitled to the benefits of the Indenture and are legal, valid and binding obligations of the Company enforceable against the Company in accordance with their terms, subject to the effect of bankruptcy, insolvency, reorganization, receivership, moratorium and other laws affecting the rights and remedies of creditors generally and of general principles of equity; (vii) The Expense Agreement has been duly authorized, executed and delivered by the Company, and is a valid and legally binding obligation of the Company enforceable in accordance with its terms, subject to the effect of bankruptcy, insolvency, reorganization, receivership, moratorium and other laws affecting the rights and remedies of creditors generally and of general principles of equity; (viii) To the best of such counsel's knowledge, neither of the Offerors nor any of the Banks is in breach or violation of, or default under, with or without notice or lapse of time or both, its corporate charter, by-laws or governing document (including without limitation, the Trust Agreement). The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated by this Agreement, and the Trust Agreement do not and will not conflict with, result in the creation or 26 27 imposition of any material lien, claim, charge, encumbrance or restriction upon any property or assets of the Offerors or the Banks or the Designated Preferred Securities pursuant to, or constitute a material breach or violation of, or constitute a material default under, with or without notice or lapse of time or both, any of the terms, provisions or conditions of the charter, by-laws or governing document (including without limitation, the Trust Agreement) of the Offerors or the Banks, or to the best of such counsel's knowledge, any material contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease, franchise, license or any other agreement or instrument to which either Offeror or the Banks is a party or by which any of them or any of their respective properties may be bound or any order, decree, judgment, franchise, license, Permit, rule or regulation of any court, arbitrator, government, or governmental agency or instrumentality, domestic or foreign, known to such counsel having jurisdiction over the Offerors or the Banks or any of their respective properties which, in each case, is material to the Offerors and the Banks on a consolidated basis. No authorization, approval, consent or order of, or filing, registration or qualification with, any person (including, without limitation, any court, governmental body or authority) is required under Michigan law in connection with the transactions contemplated by this Agreement in connection with the purchase and distribution of the Designated Preferred Securities by the Underwriters. (ix) To the best of such counsel's knowledge, holders of securities of the Offerors either do not have any right that, if exercised, would require the Offerors to cause such securities to be included in the Registration Statement or have waived such right. To the best of such counsel's knowledge, neither the Offerors nor any of the Banks is a party to any agreement or other instrument which grants rights for or relating to the registration of any securities of the Offerors. (x) Except as set forth in the Registration Statement and the Prospectus, to the best of such counsel's knowledge, (i) no action, suit or proceeding at law or in equity is pending or threatened in writing to which the Offerors or the Banks is or may be a party, and (ii) no action, suit or proceeding is pending or threatened in writing against or affecting the Offerors or the Banks or any of their properties, before or by any court or governmental official, commission, board or other administrative agency, authority or body, or any arbitrator, wherein an unfavorable decision, ruling or finding could have a material adverse effect on the consummation of this Agreement or the issuance and sale of the Designated Preferred Securities as contemplated herein or the condition (financial or otherwise), earnings, affairs, business, or results of operations of the Offerors and the Banks on a consolidated basis or which is required to be disclosed in the Registration Statement or the Prospectus and is not so disclosed. 27 28 (xi) No authorization, approval, consent or order of or filing, registration or qualification with, any person (including, without limitation, any court, governmental body or authority) is required in connection with the transactions contemplated by this Agreement, the Trust Agreement, the Registration Statement and the Prospectus, except such as have been obtained under the 1933 Act, and except such as may be required under state securities laws or Interpretations or Rules of the NASD in connection with the purchase and distribution of the Designated Preferred Securities by the Underwriter. (xii) The Registration Statement and the Prospectus and any amendments or supplements thereto (other than the financial statements or other financial data included therein or omitted therefrom and Underwriter's Information, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations as of their respective dates of effectiveness. (xiii) To the best of such counsel's knowledge, there are no contracts, agreements, leases or other documents of a character required to be disclosed in the Registration Statement or Prospectus or to be filed as exhibits to the Registration Statement that are not so disclosed or filed. (xiv) The statements under the captions "Description of Capital Stock", "Supervision and Regulation", "Description of Preferred Securities", "Description of Subordinated Debentures", "Description of the Guarantee", "Relationship Among the Preferred Securities, the Subordinated Debentures and the Guarantee", "Certain Federal Income Tax Consequences" and "ERISA Considerations" in the Prospectus, insofar as such statements constitute a summary of legal and regulatory matters, documents or proceedings referred to therein are accurate in all material respects and fairly present the information called for with respect to such legal matters, documents and proceedings, other than financial and statistical data as to which said counsel expresses no opinion or belief. (xv) Such counsel has been advised by the staff of the Commission that the Registration Statement has become effective under the 1933 Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made within the time period required by Rule 424(b); to the best of such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for a stop order are pending or threatened by the Commission. (xvi) Except as set forth in the Prospectus, to the best of such 28 29 counsel's knowledge, there are no contractual encumbrances or restrictions, or material legal restrictions on the ability of the Banks (A) to pay dividends or make any other distributions on its capital stock or to pay indebtedness owed to the Offerors, (B) to make any loans or advances to, or investments in, the Offerors or (C) to transfer any of its property or assets to the Offerors. (xvii) To the best of such counsel's knowledge, (A) the business and operations of the Offerors and the Banks comply in all material respects with all statutes, ordinances, laws, rules and regulations applicable thereto and which are material to the Offerors and the Banks on a consolidated basis, except in those instances where non-compliance would not materially impair the ability of the Offerors and the Banks to conduct their business; and (B) the Offerors and the Banks possess and are operating in all material respects in compliance with the terms, provisions and conditions of all permits, consents, licenses, franchises and governmental and regulatory authorizations ("Permits") and required to conduct their businesses as described in the Prospectus and which are material to the Offerors and the Banks on a consolidated basis, except in those instances where the loss thereof or non-compliance therewith would not have a material adverse effect on the condition (financial or otherwise), earnings, affairs, business, prospects or results of operations of the Offerors and the Banks on a consolidated basis; to the best of such counsel's knowledge, all such Permits are valid and in full force and effect, and, to the best of such counsel's knowledge, no action, suit or proceeding is pending or threatened which may lead to the revocation, termination, suspension or non-renewal of any such Permit, except in those instances where the loss thereof or non-compliance therewith would not materially impair the ability of the Offerors or the Banks to conduct their businesses. In giving the above opinion, such counsel may state that, insofar as such opinion involves factual matters, they have relied upon certificates of officers of the Offerors including, without limitation, certificates as to the identity of any and all material contracts, indentures, mortgages, deeds of trust, loans or credit agreements, notes, leases, franchises, licenses or other agreements or instruments, and all material permits, easements, consents, licenses, franchises and government regulatory authorizations, for purposes of paragraphs (viii), (xiii) and (xvii) hereof and certificates of public officials. Such counsel shall also confirm that, in connection with the preparation of the Registration Statement and Prospectus, such counsel has participated in conferences with officers and representatives of the Offerors and with their independent public accountants and with the Underwriter and the Underwriter's counsel, at which conferences such counsel made inquiries of such 29 30 officers, representatives and accountants and discussed in detail the contents of the Registration Statement and Prospectus and such counsel has no reason to believe (A) that the Registration Statement or any amendment thereto (except for the financial statements and related schedules and statistical data included therein or omitted therefrom or Underwriter's Information, as to which such counsel need express no opinion), at the time the Registration Statement or any such amendment became effective, contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or (B) that the Prospectus or any amendment or supplement thereto (except for the financial statements and related schedules and statistical data included therein or omitted therefrom or Underwriter's Information, as to which such counsel need express no opinion), at the time the Registration Statement became effective (or, if the term "Prospectus" refers to the prospectus first filed pursuant to Rule 424(b) of the 1933 Act Regulations, at the time the Prospectus was issued), at the time any such amended or supplemented Prospectus was issued, at the Closing Date and, if applicable, the Option Closing Date, contained or contains any untrue statement of a material fact or omitted or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading. (e) Richards, Layton and Finger, special Delaware counsel to the Offerors, shall have furnished to the Underwriter their signed opinion, dated as of Closing Date or the Option Closing Date, as the case may be, in form and substance satisfactory to such counsel, to the effect that: (i) The Trust has been duly created and is validly existing in good standing as a business trust under the Delaware Business Trust Act and, under the Trust Agreement and the Delaware Business Trust Act, has the trust power and authority to conduct its business as described in the Prospectus. (ii) The Trust Agreement is a legal, valid and binding agreement of the Company and the Trustees, and is enforceable against the Company and the Trustees, in accordance with its terms. (iii) Under the Trust Agreement and the Delaware Business Trust Act, the execution and delivery of the Underwriting Agreement by the Trust, and the performance by the Trust of its obligations thereunder, have been authorized by all requisite trust action on the part of the Trust. (iv) The Designated Preferred Securities have been duly authorized by the Trust Agreement, and when issued and sold in accordance with 30 31 the Trust Agreement, the Designated Preferred Securities will be, subject to the qualifications set forth in paragraph (v) below, fully paid and nonassessable beneficial interest in the assets of the Trust and entitled to the benefits of the Trust Agreement. (v) Holders of Designated Preferred Securities, as beneficial owners of the Trust, will be entitled to the same limitation of personal liability extended to stockholders of private, for-profit corporations organized under the General Corporation Law of the State of Delaware. Such opinion may note that the holders of Designated Preferred Securities may be obligated to make payments as set forth in the Trust Agreement. (vi) Under the Delaware Business Trust Act and the Trust Agreement, the issuance of the Designated Preferred Securities is not subject to preemptive rights. (vii) The issuance and sale by the Trust of the Designated Preferred Securities and the Common Securities, the execution, delivery and performance by the Trust of this Agreement, and the consummation of the transactions contemplated by this Agreement, do not violate (a) the Trust Agreement, or (b) any applicable Delaware law, rule or regulation. Such opinion may state that it is limited to the laws of the State of Delaware and that the opinion expressed in paragraph (ii) above is subject to the effect upon the Trust Agreement of (i) bankruptcy, insolvency, moratorium, receivership, reorganization, liquidation, fraudulent conveyance and other similar laws relating to or affecting the rights and remedies of creditors generally, (ii) principles of equity, including applicable law relating to fiduciary duties (regardless of whether considered and applied in a proceeding in equity or at law), and (iii) the effect of applicable public policy on the enforceability of provisions relating to indemnification or contribution. (f) Bryan Cave LLP, counsel for the Underwriter, shall have furnished the Underwriter their signed opinion, dated the Closing Date or the Option Closing Date, as the case may be, with respect to the sufficiency of all corporate procedures and other legal matters relating to this Agreement, the validity of the Designated Preferred Securities, the Registration Statement, the Prospectus and such other related matters as the Underwriter may reasonably request and there shall have been furnished to such counsel such documents and other information as they may request to enable them to pass on such matters. In giving such opinion, Bryan Cave LLP may rely as to matters of fact upon statements and certifications of officers of the Offerors and of other appropriate persons and may rely as to 31 32 matters of law, other than law of the United States and the State of Missouri, and upon the opinions of Varnum, Riddering, Schmidt & Howlett LLP and Richards, Layton and Finger described herein. (g) On the date of this Agreement and on the Closing Date (and, if applicable, any Option Closing Date), the Underwriter shall have received from KPMG Peat Marwick LLP a letter, dated the date of this Agreement and the Closing Date (and, if applicable, the Option Closing Date), respectively, in form and substance satisfactory to the Underwriter, confirming that they are independent public accountants with respect to Company, within the meaning of the 1933 Act and the 1933 Act Regulations, and stating in effect that: (i) In their opinion, the consolidated financial statements of the Company audited by them and included in the Registration Statement comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and the 1933 Act Regulations. (ii) On the basis of the procedures specified by the American Institute of Certified Public Accountants as described in SAS No. 71, "Interim Financial Information", inquiries of officials of the Company responsible for financial and accounting matters, and such other inquiries and procedures as may be specified in such letter, which procedures do not constitute an audit in accordance with U.S. generally accepted auditing standards, nothing came to their attention that caused them to believe that, if applicable, the unaudited interim consolidated financial statements of the Company included in the Registration Statement do not comply as to form in all material respects with the applicable accounting requirements of the 1933 Act and 1933 Act Regulations or are not in conformity with U.S. generally accepted accounting principles applied on a basis substantially consistent, except as noted in the Registration Statement, with the basis for the audited consolidated financial statements of the Company included in the Registration Statement. (iii) On the basis of limited procedures, not constituting an audit in accordance with U.S. generally accepted auditing standards, consisting of a reading of the unaudited interim financial statements and other information referred to below, a reading of the latest available unaudited condensed consolidated financial statements of the Company, inspection of the minute books of the Company since the date of the latest audited financial statements of the Company included in the Registration Statement, inquiries of officials of the Company responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that: 32 33 (A) as of a specified date not more than five days prior to the date of such letter, there have been any changes in the consolidated capital stock of the Company, any increase in the consolidated debt of the Company, any decreases in consolidated total assets or shareholders equity of the Company, or any changes, decreases or increases in other items specified by the Underwriter, in each case as compared with amounts shown in the latest unaudited interim consolidated statement of financial condition of the Company included in the Registration Statement except in each case for changes, increases or decreases which the Registration Statement specifically discloses, have occurred or may occur or which are described in such letter; and (B) for the period from the date of the latest unaudited interim consolidated financial statements included in the Registration Statement to the specified date referred to in Clause (iii)(A), there were any decreases in the consolidated interest income, net interest income, or net income of the Company or in the per share amount of net income of the Company, or any changes, decreases or increases in any other items specified by the Underwriter, in each case as compared with the comparable period of the preceding year and with any other period of corresponding length specified by the Underwriter, except in each case for increases or decreases which the Registration Statement discloses have occurred or may occur, or which are described in such letter. (iv) In addition to the audit referred to in their report included in the Registration Statement and the limited procedures, inspection of minute books, inquiries and other procedures referred to in paragraphs (ii) and (iii) above, they have carried out certain specified procedures, not constituting an audit in accordance with U.S. generally accepted auditing standards, with respect to certain amounts, percentages and financial information specified by the Underwriter which are derived from the general accounting records and consolidated financial statements of the Company which appear in the Registration Statement specified by the Underwriter in the Registration Statement, and have compared such amounts, percentages and financial information with the accounting records and the material derived from such records and consolidated financial statements of the Company have found them to be in agreement. In the event that the letters to be delivered referred to above set forth any such changes, decreases or increases as specified in Clauses (iii)(A) or (iii)(B) above, or any exceptions from such agreement specified in Clause (iv) above, it 33 34 shall be a further condition to the obligations of the Underwriter that the Underwriter shall have determined, after discussions with officers of the Company responsible for financial and accounting matters, that such changes, decreases, increases or exceptions as are set forth in such letters do not (x) reflect a material adverse change in the items specified in Clause (iii)(A) above as compared with the amounts shown in the latest unaudited consolidated statement of financial condition of the Company included in the Registration Statement, (y) reflect a material adverse change in the items specified in Clause (iii)(B) above as compared with the corresponding periods of the prior year or other period specified by the Underwriter, or (z) reflect a material change in items specified in Clause (iv) above from the amounts shown in the Preliminary Prospectus distributed by the Underwriter in connection with the offering contemplated hereby or from the amounts shown in the Prospectus. (h) At the Closing Date and, if applicable, the Option Closing Date, the Underwriter shall have received certificates of the chief executive officer and the chief financial and accounting officer of the Company, which certificates shall be deemed to be made on behalf of the Company dated as of the Closing Date and, if applicable, the Option Closing Date, evidencing satisfaction of the conditions of Section 6(a) and stating that (i) the representations and warranties of the Company set forth in Section 2(a) hereof are accurate as of the Closing Date and, if applicable, the Option Closing Date, and that the Offerors have complied with all agreements and satisfied all conditions on their part to be performed or satisfied at or prior to such Closing Date; (ii) since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any material adverse change in the condition (financial or otherwise), earnings, affairs, business, prospects or results of operations of the Offerors and the Banks on a consolidated basis; (iii) since such dates there has not been any material transaction entered into by the Offerors or the Banks other than transactions in the ordinary course of business; and (iv) they have carefully examined the Registration Statement and the Prospectus as amended or supplemented and nothing has come to their attention that would lead them to believe that either the Registration Statement or the Prospectus, or any amendment or supplement thereto as of their respective effective or issue dates, contained, and the Prospectus as amended or supplemented at such Closing Date (and, if applicable, the Option Closing Date), contains any untrue statement of a material fact, or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; and (v) covering such other matters as the Underwriter may reasonably request. The officers' certificate of the Company shall further state that no stop order affecting the Registration Statement is in effect or, to their knowledge, threatened. (i) At the Closing Date and, if applicable, the Option Closing Date, the Underwriter shall have received a certificate of an authorized representative of 34 35 the Trust to the effect that to the best of his or her knowledge based upon a reasonable investigation, the representations and warranties of the Trust in this Agreement are true and correct as though made on and as of the Closing Date (and, if applicable, the Option Closing Date); the Trust has complied with all the agreements and satisfied all the conditions required by this Agreement to be performed or satisfied by the Trust on or prior to the Closing Date and since the most recent date as of which information is given in the Prospectus, except as contemplated by the Prospectus, the Trust has not incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions not in the ordinary course of business and there has not been any material adverse change in the condition (financial or otherwise) of the Trust. (j) On the Closing Date, the Underwriter shall have received duly executed counterparts of the Trust Agreement, the Guarantee, the Indenture and the Expense Agreement. (k) The NASD, upon review of the terms of the public offering of the Designated Preferred Securities, shall not have objected to the Underwriter's participation in such offering. (l) Prior to the Closing Date and, if applicable, the Option Closing Date, the Offerors shall have furnished to the Underwriter and the Underwriter's counsel all such other documents, certificates and opinions as they have reasonably requested. All opinions, certificates, letters and other documents shall be in compliance with the provisions hereof only if they are reasonably satisfactory in form and substance to the Underwriter. The Offerors shall furnish the Underwriter with conformed copies of such opinions, certificates, letters and other documents as the Underwriter shall reasonably request. If any of the conditions referred to in this Section 6 shall not have been fulfilled when and as required by this Agreement, this Agreement and all of the Underwriter's obligations hereunder may be terminated by the Underwriter on notice to the Company at, or at any time before, the Closing Date or the Option Closing Date, as applicable. Any such termination shall be without liability of the Underwriter to the Offerors. 7. INDEMNIFICATION AND CONTRIBUTION. (a) The Offerors agree to jointly and severally indemnify and hold harmless the Underwriter, each of its directors, officers and agents, and each person, if any, who controls the Underwriter within the meaning of the 1933 Act, against any and all losses, claims, damages, liabilities and expenses (including 35 36 reasonable costs of investigation and reasonable attorney fees and expenses), joint or several, arising out of or based (i) upon any untrue statement or alleged untrue statement of a material fact made by the Company or the Trust contained in Section 2(a) of this Agreement (or any certificate delivered by the Company or the Trust pursuant hereto Section 6(l) hereto) or the registration statement as originally filed or the Registration Statement, any Preliminary Prospectus or the Prospectus, or in any amendment or supplement thereto, (ii) upon any blue sky application or other document executed by the Company or the Trust specifically for that purpose or based upon written information furnished by the Company or the Trust filed in any state or other jurisdiction in order to qualify any of the Designated Preferred Securities under the securities laws thereof (any such application, document or information being hereinafter referred to as a "Blue Sky Application"), (iii) any omission or alleged omission to state a material fact in the registration statement as originally filed or the Registration Statement, any Preliminary Prospectus or the Prospectus, or in any amendment or supplement thereto, or in any Blue Sky Application) required to be stated therein or necessary to make the statements therein not misleading, and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation and attorney fees), joint or several, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus or the Prospectus, or in any amendment of supplement thereto, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or (iv) the enforcement of this indemnification provision or the contribution provisions of Section 7(d); and shall reimburse each such indemnified party for any reasonable legal or other expenses as incurred, but in no event less frequently than 30 days after each invoice is submitted, incurred by them in connection with investigating or defending against or appearing as a third-party witness in connection with any such loss, claim, damage, liability or action, notwithstanding the possibility that payments for such expenses might later be held to be improper, in which case such payments shall be promptly refunded; provided, however, that the Offerors shall not be liable in any such case to the extent, but only to the extent, that any such losses, claims, damages, liabilities and expenses arise out of or are based upon any untrue statement or omission or allegation thereof that has been made therein or omitted therefrom in reliance upon and in conformity with information furnished in writing to the Offerors through the Underwriter expressly for use therein beneath the heading "Underwriting;" provided, that the indemnification contained in this paragraph with respect to any Preliminary Prospectus shall not inure to the benefit of the Underwriter (or of any person controlling the Underwriter) to the extent any such losses, claims, damages, liabilities or expenses directly results from the fact that the Underwriter sold Designated Preferred Securities to a person to whom there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus (as amended or supplemented if any amendments or 36 37 supplements thereto shall have been furnished to the Underwriter in sufficient time to distribute same with or prior to the written confirmation of the sale involved), if required by law, and if such loss, claim, damage, liability or expense would not have arisen but for the failure to give or send such person such document. The foregoing indemnity agreement is in addition to any liability the Company or the Trust may otherwise have to any such indemnified party. (b) The Underwriter, agrees to indemnify and hold harmless each Offeror, each of its directors, each of its officers who signed the Registration Statement and each person, if any, who controls an Offeror within the meaning of the 1933 Act, to the same extent as required by the foregoing indemnity from the Company to the Underwriter, but only with respect to information relating to the Underwriter furnished in writing to an Offeror through the Underwriter by or on behalf of it expressly for use in connection with the registration statement as originally filed, the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, beneath the heading "Underwriting" or in a Blue Sky Application. The foregoing indemnity agreement is in addition to any liability which the Underwriter may otherwise have to any such indemnified party. (c) If any action or claim shall be brought or asserted against any indemnified party or any person controlling an indemnified party in respect of which indemnity may be sought from the indemnifying party, such indemnified party or controlling person shall promptly notify the indemnifying party in writing, and the indemnifying party shall assume the defense thereof, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all expenses; provided, however, that the failure so to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under such paragraph, and further, shall only relieve it from liability under such paragraph to the extent prejudiced thereby. Any indemnified party or any such controlling person shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such indemnified party or such controlling person unless (i) the employment thereof has been specifically authorized by the indemnifying party in writing, (ii) the indemnifying party has failed to assume the defense or to employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both such indemnified party or such controlling person and the indemnifying party and such indemnified party or such controlling person shall have been advised by such counsel that there may be one or more legal defenses available to it that are different from or in addition to those available to the indemnifying party (in which case, if such indemnified party or controlling person notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the 37 38 defense of such action on behalf of such indemnified party or such controlling person) it being understood, however, that the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys at any time and for all such indemnified party and controlling persons, which firm shall be designated in writing by the indemnified party. Each indemnified party and each controlling person, as a condition of such indemnity, shall use reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. The indemnifying party shall not be liable for any settlement of any such action effected without its written consent, but if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party and any such controlling person from and against any loss, claim, damage, liability or expense by reason of such settlement or judgment. An indemnifying party shall not, without the prior written consent of each indemnified party, settle, compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnity may be sought hereunder (whether or not such indemnified party or any person who controls such indemnified party within the meaning of the 1933 Act is a party to such claim, action, suit or proceeding), unless such settlement, compromise or consent includes a release of each such indemnified party reasonably satisfactory to each such indemnified party and each such controlling person from all liability arising out of such claim, action, suit or proceeding or unless the indemnifying party shall confirm in a written agreement with each indemnified party, that notwithstanding any federal, state or common law, such settlement, compromise or consent shall not alter the right of any indemnified party or controlling person to indemnification or contribution as provided in this Agreement. (d) If the indemnification provided for in this Section 7 is unavailable or insufficient to hold harmless an indemnified party under paragraphs (a), (b) or (c) hereof in respect of any losses, claims, damages, liabilities or expenses referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses (i) in such proportion as is appropriate to reflect the relative benefits received by the Offerors on the one hand and the Underwriter on the other from the offering of the Designated Preferred Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Offerors on the one hand and the Underwriter on the other in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities 38 39 or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Offerors on the one hand and the Underwriter on the other shall be deemed to be in the same proportion as the total net proceeds from the offering of the Designated Preferred Securities (before deducting expenses) received by the Offerors bear to the total underwriting discounts, commissions and compensation received by the Underwriter, in each case as set forth in the table on the cover page of the Prospectus. The relative fault of the Offerors on the one hand and of the Underwriter on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Offerors or by the Underwriter and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. Each Offeror and the Underwriter agrees that it would not be just and equitable if contribution pursuant to this paragraph (d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities and expenses referred to in the first sentence of this paragraph (d) shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this paragraph (d), the Underwriter shall not be required to contribute any amount in excess of the amount by which the total price at which the Designated Preferred Securities underwritten by such Underwriter and distributed to the public were offered to the public exceeds the amount of any damages that such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this paragraph (d), each person who controls the Underwriter within the meaning of the 1933 Act shall have the same rights to contribution as such Underwriter, and each person who controls an Offeror within the meaning of the 1933 Act, each officer and trustee of an Offeror who shall have signed the Registration Statement and each director of an Offeror shall have the same rights to contribution as the Offerors subject in each case to the preceding sentence. The obligations of the Offerors under this paragraph (d) shall be in addition to any liability which the Offerors may otherwise have and the obligations of the Underwriter under this paragraph (d) shall be in addition to any liability that the Underwriter may otherwise have. (e) The indemnity and contribution agreements contained in this Section 7 and the representations and warranties of the Offerors set forth in this 39 40 Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of the Underwriter or any person controlling the Underwriter or by or on behalf of the Offerors, or such directors, trustees or officers (or any person controlling an Offeror, (ii) acceptance of any Designated Preferred Securities and payment therefor hereunder and (iii) any termination of this Agreement. A successor of the Underwriter or of an Offeror, such directors, trustees or officers (or of any person controlling the Underwriter or an Offeror) shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 7. (f) The Company agrees to indemnify the Trust against any and all losses, claims, damages or liabilities that may become due from the Trust under this Section 7. 8. TERMINATION. The Underwriter shall have the right to terminate this Agreement at any time at or prior to the Closing Date or, with respect to the Underwriter's obligation to purchase the Option Preferred Securities, at any time at or prior to the Option Closing Date, without liability on the part of the Underwriter to the Offerors, if: (a) Either Offeror shall have failed, refused, or been unable to perform any agreement on its part to be performed under this Agreement, or any of the conditions referred to in Section 6 shall not have been fulfilled, when and as required by this Agreement; (b) The Offerors or the Banks shall have sustained any material loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree which in the judgment of the Underwriter materially impairs the investment quality of the Designated Preferred Securities; (c) There has been since the respective dates as of which information is given in the Registration Statement or the Prospectus, any materially adverse change in, or any development which is reasonably likely to have a material adverse effect on, the condition (financial or otherwise), earnings, affairs, business, prospects or results of operations of the Offerors and the Banks on a consolidated basis, whether or not arising in the ordinary course of business; (d) There has occurred any outbreak of hostilities or other calamity or crisis or material change in general economic, political or financial conditions, or internal conditions, the effect of which on the financial markets of the United States is such as to make it, in the Underwriter's reasonable judgment, impracticable to market the Designated Preferred Securities or enforce contracts for the sale of the Designated Preferred Securities; 40 41 (e) Trading generally on the New York Stock Exchange, the American Stock Exchange or the Nasdaq National Market shall have been suspended, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have been required, by any of said exchanges or market system or by the Commission or any other governmental authority; (f) A banking moratorium shall have been declared by either federal or Michigan authorities; or (g) Any action shall have been taken by any government in respect of its monetary affairs which, in the Underwriter's reasonable judgment, has a material adverse effect on the United States securities markets. If this Agreement shall be terminated pursuant to this Section 8, the Offerors shall not then be under any liability to the Underwriter except as provided in Sections 5 and 7 hereof. 9. EFFECTIVE DATE OF AGREEMENT. If the Registration Statement is not effective at the time of execution of this Agreement, this Agreement shall become effective on the Effective Date at the time the Commission declares the Registration Statement effective. The Company shall immediately notify the Underwriter when the Registration Statement becomes effective. If the Registration Statement is effective at the time of execution of this Agreement, this Agreement shall become effective at the earlier of 11:00 a.m. St. Louis time, on the first full business day following the day on which this Agreement is executed, or at such earlier time as the Underwriter shall release the Designated Preferred Securities for initial public offering. The Underwriter shall notify the Offerors immediately after it has taken any action which causes this Agreement to become effective. Until such time as this Agreement shall have become effective, it may be terminated by the Offerors, by notifying the Underwriter, or by the Underwriter by notifying either Offeror, except that the provisions of Sections 5 and 7 shall at all times be effective. 10. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. The representations, warranties, indemnities, agreements and other statements of the Offerors and their officers and trustees set forth in or made pursuant to this Agreement and the agreements of the Underwriter contained in Section 7 hereof shall remain operative and in full force and effect regardless of any investigation made by or on behalf of the Offerors or controlling persons of either 41 42 Offeror, or by or on behalf of the Underwriter or controlling persons of the Underwriter or any termination or cancellation of this Agreement and shall survive delivery of and payment for the Designated Preferred Securities. 11. NOTICES. Except as otherwise provided in this Agreement, all notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered by hand, mailed by registered or certified mail, return receipt requested, or transmitted by any standard form of telecommunication and confirmed. Notices to either Offeror shall be sent to 230 West Main Street, P.O. Box 491, Ionia, Michigan 48846, Attention: William R. Kohls (with a copy to Varnum, Riddering, Schmidt & Howlett LLP, 333 Bridge Street, N.W., P.O. Box 352, Grand Rapids, Michigan 49501-0352, Attention: Michael G. Wooldridge, Esq.); and notices to the Underwriter shall be sent to Stifel, Nicolaus & Company, Incorporated, 500 North Broadway, Suite 1500, St. Louis, Missouri 63102, Attention: Rick E. Maples (with a copy to Bryan Cave LLP, 211 North Broadway, Suite 3600, St. Louis, Missouri 63102, Attention: James L. Nouss, Jr., Esq.). 12. PARTIES. The Agreement herein set forth is made solely for the benefit of the Underwriter and the Offerors and, to the extent expressed, directors, trustees and officers of the Offerors, any person controlling the Offerors or the Underwriter, and their respective successors and assigns. No other person shall acquire or have any right under or by virtue of this Agreement. The term "successors and assigns" shall not include any purchaser, in his status as such purchaser, from the Underwriter of the Designated Preferred Securities. 13. GOVERNING LAW. This Agreement shall be governed by the laws of the State of Missouri, without giving effect to the choice of law or conflicts of law principles thereof. 14. COUNTERPARTS. This Agreement may be executed in one or more counterparts, and when a counterpart has been executed by each party hereto all such counterparts taken together shall constitute one and the same Agreement. 42 43 If the foregoing is in accordance with the your understanding of our agreement, please sign and return to us a counterpart hereof, whereupon this shall become a binding agreement between the Company, the Trust and you in accordance with its terms. Very truly yours, INDEPENDENT BANK CORPORATION By: ------------------------- Name: Title: IBC CAPITAL FINANCE By: ---------------------------- Name: Title: CONFIRMED AND ACCEPTED, as of December __, 1996. STIFEL, NICOLAUS & COMPANY, INCORPORATED By: ------------------------------- Name: Title: 43 EX-4.1 3 EXHIBIT 4.1 1 EXHIBIT 4.1 [FORM OF INDENTURE] INDEPENDENT BANK CORPORATION AND STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE INDENTURE ___________% SUBORDINATED DEBENTURES DATED AS OF __________, 1996. 2 EXHIBIT 4.1 CROSS-REFERENCE TABLE SECTION OF TRUST INDENTURE ACT SECTION OF OF 1939, AS AMENDED INDENTURE - ------------------- ---------- 310(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.9 310(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.10 310(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable 311(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.13 311(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.13 311(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable 312(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2(a) 312(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2(b) 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). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3 314(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable 314(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.7 314(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable 314(e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.7 314(f). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable 315(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3 315(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 315(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1 315(d). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1(b) 315(e). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.7 316(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 316(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4 316(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.1 317(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2 317(b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.4 318(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.9 Note: This reconciliation and tic sheet shall not, for any purpose, be deemed to be a part of the Indenture. 3 TABLE OF CONTENTS
PAGE NO. -------- ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.1. Definitions of Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II Terms and Conditions of the Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 2.1. Designation and Principal Amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Section 2.2 Maturity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Section 2.3. Form and Payment. . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 2.4. Global Debenture. . . . . . . . . . . . . . . . . . . . . . . . . . 10 Section 2.5. Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Section 2.6. Execution and Authentications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Section 2.7. Registration of Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 2.8. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Section 2.9. Mutilated, Destroyed, Lost or Stolen Securities . . . . . . . . . . . . . . . . . . . . 14 Section 2.10. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 2.11. Benefit of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Section 2.12. Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE III Redemption of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 3.1. Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 3.2. Special Event Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 3.3. Optional Redemption by Company. . . . . . . . . . . . . . . . . . . . . . . . 16 Section 3.4. Notice of Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 3.5. Payment Upon Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 3.6. No Sinking Fund. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE IV Extension of Interest Payment Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 4.1. Extension of Interest Payment Period. . . . . . . . . . . . . . . . . . . . . 18 Section 4.2. Notice of Extension. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 4.3. Limitation of Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE V Particular Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 5.1. Payment of Principal, Premium and Interest. . . . . . . . . . . . . . . . . . . . . . . 20 Section 5.2. Maintenance of Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 5.3. Paying Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 5.4. Appointment to Fill Vacancy in Office of Trustee. . . . . . . . . . . . . . . . . . . . 22 Section 5.5. Compliance with Consolidation Provisions. . . . . . . . . . . . . . . . . . . . . . . . 22 Section 5.6. Limitation on Dividends; Transactions with Affiliates. . . . . . . . . . . . . . . . . 22 Section 5.7. Covenants as to IBC Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
i 4 ARTICLE VI Securityholders' Lists and Reports by the Company and the Trustee . . . . . . . . . . . . . . . 23 Section 6.1. Company to Furnish Trustee Names and Addresses of Securityholders. . . . . . . . . . . 23 Section 6.2. Preservation Of Information Communications With Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 6.3. Reports by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Section 6.4. Reports by the Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE VII Remedies of the Trustee and Securityholders on Event of Default . . . . . . . . . . . . . . . . . . . . 24 Section 7.1. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Section 7.2. Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . . . . . . . 27 Section 7.3. Application of Moneys Collected. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Section 7.4. Limitation on Suits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 7.5. Rights and Remedies Cumulative; Delay or Omission Not Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 7.6. Control by Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Section 7.7. Undertaking to Pay Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE VIII Form of Debenture and Original Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 8.1 Form of Debenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 8.2 Original Issue of Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE IX. Concerning the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 9.1. Certain Duties and Responsibilities Trustee. . . . . . . . . . . . . . . . . . . . . . 31 Section 9.2. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 9.3. Certain Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 9.4. Trustee Not Responsible for Recitals or Issuance or Securities. . . . . . . . . . . . . 34 Section 9.5. May Hold Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 9.6. Moneys Held in Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 9.7. Compensation and Reimbursement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 9.8. Reliance on Officers' Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 9.9. Disqualification: Conflicting Interests. . . . . . . . . . . . . . . . . . . . . . . . 35 Section 9.10. Corporate Trustee Required; Eligibility. . . . . . . . . . . . . . . . . . . . . . . . 35 Section 9.11. Resignation and Removal; Appointment of Successor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 9.12. Acceptance of Appointment By Successor. . . . . . . . . . . . . . . . . . . . . . . . . 37 Section 9.13. Merger, Conversion, Consolidation or Succession to Business 38 Section 9.14. Preferential Collection of Claims Against the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ii 5 ARTICLE X Concerning the Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 10.1. Evidence of Action by Securityholders. . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 10.2. Proof of Execution by Securityholders . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 10.3. Who May be Deemed Owners. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 10.4. Certain Securities Owned by Company Disregarded. . . . . . . . . . . . . . . . . . . . 40 Section 10.5. Actions Binding on Future Securityholders. . . . . . . . . . . . . . . . . . . . . . . 41 ARTICLE XI. Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 11.1. Supplemental Indentures Without the Consent of Securityholders. . . . . . . . . . . . . 41 Section 11.2. Supplemental Indentures With Consent of Securityholders. . . . . . . . . . . . . . . . 42 Section 11.3. Effect of Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Section 11.4. Securities Affected by Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . 43 Section 11.5. Execution of Supplemental Indentures. . . . . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE XII Successor Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 12.1. Company May Consolidate, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 12.2. Successor Corporation Substituted. . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 12.3. Evidence of Consolidation, Etc. to Trustee. . . . . . . . . . . . . . . . . . . . . . . 45 ARTICLE XIII Satisfaction and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 13.1. Satisfaction and Discharge of Indenture. . . . . . . . . . . . . . . . . . . . . . . . 45 Section 13.2. Discharge of Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 13.3. Deposited Moneys to be Held in Trust. . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 13.4. Payment of Monies Held by Paying Agents. . . . . . . . . . . . . . . . . . . . . . . . 46 Section 13.5. Repayment to Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE XIV Immunity of Incorporators, Stockholders, Officers and Directors . . . . . . . . . . . . . . . . . . . . 46 Section 14.1. No Recourse. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE XV Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 15.1. Effect on Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 15.2. Actions by Successor. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 15.3. Surrender of Company Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 15.4. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 15.5. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 15.6. Treatment of Debentures as Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 15.7. Compliance Certificates and Opinions. . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 15.8. Payments on Business Days. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
iii 6 Section 15.9. Conflict with Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 15.10 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 15.11 Separability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 15.12 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 15.13 Acknowledgment of Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE XVI. Subordination of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 16.1. Agreement to Subordinate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 16.2. Default on Senior Debt, Subordinated Debt or Additional Senior Obligations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 16.3. Liquidation; Dissolution; Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 16.4. Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 16.5. Trustee to Effectuate Subordination. . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 16.6. Notice by the Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 16.7. Rights of the Trustee; Holders of Senior Indebtedness. . . . . . . . . . . . . . . . . 54 Section 16.8. Subordination May Not Be Impaired. . . . . . . . . . . . . . . . . . . . . . . . . . . 54
iv 7 INDENTURE, dated as of ____________________________, 1996, among Independent Bank Corporation, a Michigan corporation (the "Company") and State Street Bank and Trust Company, a Massachusetts corporation, as trustee (the "Trustee"); WHEREAS, for its lawful corporate purposes, the Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of a new series of its securities to be known as its ___________ % Junior Subordinated Debentures due 2026 (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, IBC Capital Finance, a Delaware statutory business trust ( the "Trust"), has offered to the public $___ million aggregate liquidation amount of its ___% Trust Preferred Securities (the "Preferred Securities"), representing undivided beneficial interests in the assets of the Trust 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 $___ million aggregate liquidation amount of its ___% Trust Common Securities, in $____ million aggregate principal amount of the Debentures; and WHEREAS, the Company has requested that the Trustee execute and deliver this Indenture and 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 has been duly authorized in all respects: WHEREAS, to provide the terms and conditions upon which the Debentures are to be authenticated, issued and delivered, the Company has duly authorized the execution of this Indenture; and WHEREAS, all things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, in consideration of the premises and the purchase of the Securities by the holders thereof, it is mutually covenanted and agreed as follows for the equal and ratable benefit of the holders of Securities: ARTICLE I. DEFINITIONS SECTION 1.1. DEFINITIONS OF TERMS. The terms defined in this Section (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 and shall include the plural as well as the singular. All other terms used in this Indenture that are defined in the TrustIndenture Act of 1939, as amended, or that are by reference in such Act defined in the Securities Act 8 of 1933, as amended (except as herein otherwise expressly provided or unless the context otherwise requires), shall have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as in force at the date of the execution of this instrument. "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 _______________________________________, 2001. "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 do 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 Subordinated Debentures or to rank pari passu in right of payment with the Subordinated Securities 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. "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 all or any of the series of Securities appointed with respect to all or any series of the Securities 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. 2 9 "Business Day" means, with respect to any series of Securities, any day other than a day on which Federal or State banking institutions in the Borough of Manhattan, The City of New York, are authorized or obligated by law, executive order or regulation to close. "Certificate" means a certificate signed by the principal executive officer, the principal financial officer or the principal accounting officer of the Company. The Certificate need not comply with the provisions of Section 15.7. "Common Securities" means undivided beneficial interests in the assets of IBC Capital which rank pari passu with Preferred Securities issued by IBC Capital; provided, however, that upon the occurrence of an Event of Default, the rights of holders of Common Securities to payment in respect of distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of holders of Preferred Securities. "Common Securities Guarantee" means any guarantee that the Company may enter into with State Street Bank and Trust Company or other Persons that operate directly or indirectly for the benefit of holders of Common Securities of IBC Capital. "Company" means Independent Bank Corporation, a corporation duly organized and existing under the laws of the State of Michigan, and, subject to the provisions of Article Twelve, 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, Fourth Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Department. "Custodian" means any receiver, trustee, assignee, liquidator, or similar official under any Bankruptcy Law. "Debentures" means the Subordinated Debentures authenticated and delivered under this Indenture. "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 3 10 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. "Depositary" means, with respect to Securities of any series, for which the Company shall determine that such Securities will be issued as a Global Security, The Depository Trust Company, New York, New York, another clearing agency, or any successor registered as a clearing agency under the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or other applicable statute or regulation, which, in each case, shall be designated by the Company pursuant to this Indenture. "Dissolution Event" means that as a result of the occurrence and continuation of a Special Event, the Trust is to be dissolved in accordance with the Trust Agreement and the Debentures held by the Property Trustee are to be distributed to the holders of the Trust Securities issued by the Trust pro rata in accordance with the Trust Agreement. "Event of Default" means, with respect to the Debentures, any event specified in Section 7.1, continued for the period of time, if any, therein designated. "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 November _____, 2045. "Federal Reserve" means the Board of Governors of the Federal Reserve System. "Global Security" means, with respect to any series of Securities, a Security executed by the Company and delivered by the Trustee to the Depositary or pursuant to the Depositary's instruction, all in accordance with the Indenture, which shall be registered in the name of the Depositary or its nominee. "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 of 1933, as amended) 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, 4 11 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. "IBC Capital" means IBC Capital Finance, a Delaware business trust created for the purpose of issuing preferred securities in connection with the issuance of Securities under this Indenture. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into in accordance with the terms hereof. "Interest Payment Date," when used with respect to any installment of interest on the Debentures, means the date specified in the Debenture or in a Board Resolution or in an indenture supplemental hereto with respect to such series as the fixed date on which an installment of interest with respect to the Debentures is due and payable. "Investment Company Event" means the receipt by IBC Capital of an Opinion of Counsel, rendered by a law firm experienced in such matters, 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"), IBC Capital is or will be considered an "investment company" that is required to be registered under the 1940 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. "Non Book-Entry Preferred Securities" shall have the meaning set forth in Section 2.4. "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. 5 12 "Optional Redemption Price" shall have the meaning set forth in Section 3.3. "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 cancelled by the Trustee or any paying agent, or delivered to the Trustee or any paying agent for cancellation or that have previously been cancelled; (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 Three 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 2.9. "Person" means any individual, corporation, partnership, joint-venture, joint-stock company, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt and as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 2.9 in lieu of a lost, destroyed or stolen Security shall be deemed to evidence the same debt as the lost, destroyed or stolen Security "Preferred Securities" means undivided beneficial interests in the assets of a IBC Capital which rank pari passu with Common Securities issued by IBC Capital; provided, however, that upon the occurrence of an Event of Default, the rights of holders of Common Securities to payment in respect of distributions and payments upon liquidation, redemption and otherwise are subordinated to the rights of holders of Preferred Securities. "Preferred Securities Guarantee" means any guarantee that the Company may enter into with State Street Bank and Trust Company or other Persons that operate directly or indirectly for the benefit of holders of Preferred Securities of IBC Capital. "Property Trustee" has the meaning set forth in the Trust Agreement of IBC Capital Finance. "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 November _____, 2026. 6 13 "Securities" means any Debentures. "Securityholder," "holder of Securities," "registered holder," or other similar term, means the Person or Persons in whose name or names a particular Security shall be registered on the books of the Company kept for that purpose in accordance with the terms of this Indenture. "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; (v) Debt which constitutes Subordinated Debt, and (vi) any other debt securities issued pursuant to this Indenture. "Special Event" means a Tax 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 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 experienced in such matters to the effect that, as a result of any 7 14 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 Debentures under this Indenture, there is more than an insubstantial risk that (i) IBC Capital is, or will be within 90 days after the date of such Opinion of Counsel, subject to United States federal income tax with respect to income received or accrued on the Debentures, (ii) interest payable by the Company on the Debentures is not, or within 90 days after the date of such Opinion of Counsel, will not be, deductible by the Depositor, in whole or in part, for United States federal income tax purposes or (iii) IBC Capital is, or will be within 90 days after the date of such Opinion of Counsel, subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges. "Trust Agreement" means the Amended and Restated Trust Agreement, dated __________________, of IBC Capital Finance. "Trustee" means State Street Bank and Trust Company and, subject to the provisions of Article Seven, 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. The term "Trustee" as used with respect to a particular series of the Securities shall mean the trustee with respect to that series. "Trust Indenture Act," means the Trust Indenture Act of 1939, 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 Common Securities and Preferred Securities of a IBC Capital. "Voting Stock," as applied to stock of any Person, means shares, interests, participations or other equivalents in the equity interest (however designated) in such Person having ordinary voting power for the election of a majority of the directors (or the equivalent) of such Person, other than shares, interests, participations or other equivalents having such power only by reason of the occurrence of a contingency. ARTICLE II ISSUE, DESCRIPTION,TERMS, CONDITIONS REGISTRATION AND EXCHANGE OF THE DEBENTURES SECTION 2.1.DESIGNATION AND PRINCIPAL AMOUNT. There is hereby authorized a series of Securities designated the "___% Subordinated Debentures due 2026", limited in aggregate principal amount to $17,250,000 million, which amount shall be as set forth in any written order of the Company for the authentication and delivery of Debentures pursuant to Section 8.2 of this Indenture. 8 15 SECTION 2.2. MATURITY. (a) The Maturity Date will 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 prior a date 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 only once 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 any interest or principal on the Debentures; (iii) the Trust is not in arrears on payments of Distributions on the Preferred Securities issued by it and no deferred Distributions are accumulated; and (c) the Company may at any time before the day which is 90 days before the Scheduled Maturity Date and after ______________ ________________ , 2001, 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 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. 9 16 (e) if the Company elects to accelerate the Maturity Date in accordance with Section 2.2(c), the Company shall give notice to 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. Except as provided in Section 2.4, the Debentures shall be issued in fully registered certificated form without interest coupons. Principal and interest on the Debentures issued in certificated form will be payable, the transfer of such Debentures will be registrable and such Debentures will 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 Security Register. Notwithstanding the foregoing, so long as the Security 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 will be made at such place and to such account as may be designated by the Property Trustee. SECTION 2.4. GLOBAL DEBENTURE. (a) In connection with a Dissolution Event, (i) the Debentures in certificated form may be presented to the Trustee by the Property Trustee in exchange for a global Debenture in an aggregate principal amount equal to the aggregate principal amount of all outstanding Debentures (a "Global Debenture"), to be registered in the name of the Depositary, or its nominee, and delivered by the Trustee to the Depositary for crediting to the accounts of its participants pursuant to the instructions of the Administrative Trustees. The Company upon any such presentation shall execute a Global Debenture in such aggregate principal amount and deliver the same to the Trustee for authentication and delivery in accordance with this Indenture. Payments on the Debentures issued as a Global Debenture will be made to the Depositary; and (ii) if any Preferred Securities are held in non book-entry certificated form, the Debentures in certificated form may be presented to the Trustee by the Property Trustee and any Preferred Security Certificate which represents Preferred Securities other than Preferred Securities held by the Clearing Agency or its nominee ("Non Book-Entry Preferred Securities") will be deemed to represent beneficial interests in Debentures presented to the Trustee by the Property Trustee having an aggregate principal amount equal to the aggregate liquidation amount of the Non Book-Entry Preferred Securities until such Preferred Security Certificates are presented to the Security Registrar for transfer or reissuance at which time such Preferred Security Certificates will be canceled and a Debenture, registered in the name of the holder of the Preferred Security Certificate or the transferee of the holder of such Preferred Security Certificate, as the case may be, with an aggregate 10 17 principal amount equal to the aggregate liquidation amount of the Preferred Security Certificate canceled, will be executed by the Company and delivered to the Trustee for authentication and delivery in accordance with this Indenture. On issue of such Debentures, Debentures with an equivalent aggregate principal amount that were presented by the Property Trustee to the Trustee will be deemed to have been canceled. (b) A Global Debenture may be transferred, in whole but not in part, only to another nominee of the Depositary, or to a successor Depositary selected or approved by the Company or to a nominee of such successor Depositary. (c) If at any time (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary or if at any time the Depositary for the Debentures shall no longer be registered or in good standing under the Securities Exchange Act of 1934, as amended, or other applicable statute or regulation, and a successor Depositary for the Debentures is not appointed by the Company within 90 days after the Company receives such notice or becomes aware of such condition, as the case may be, or (ii) there shall have occurred and be continuing an Event of Default with respect to a Global Debenture, then the Company will execute, and the Trustee, upon written notice from the Company, will authenticate and deliver the Debentures in definitive registered form without coupons, and in an aggregate principal amount equal to the principal amount of the Global Debenture in exchange for such Global Debenture. In addition, the Company may at any time in its sole discretion determine that the Debentures shall no longer be represented by a Global Debenture. In such event the Company will execute, and the Trustee, upon receipt of an Officers Certificate evidencing such determination by the Company, will authenticate and deliver the Debentures in definitive registered form without coupons, and in an aggregate principal amount equal to the principal amount of the Global Debenture in exchange for such Global Debenture. Upon the exchange of the Global Debenture for such Debentures in definitive registered form without coupons, in authorized denominations, the Global Debenture shall be canceled by the Trustee. Such Debentures in definitive registered form issued in exchange for the Global Debenture shall be registered in such names as the Depositary, pursuant to written instructions from its direct or indirect participants or otherwise, shall instruct the Trustee. The Trustee shall deliver such Securities to the Depositary for delivery to the Persons in whose names such Securities are so registered. SECTION 2.5. INTEREST. (a) Each Debenture will bear interest at the rate of ___% per annum (the "Coupon Rate") from the original date of issuance until the principal thereof becomes due and payable, and on any overdue principal and (to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the Coupon Rate, compounded quarterly, payable (subject to the provisions of Article Four) quarterly in arrears on March 31, June 30, September 30 and December 31 of each year (each, an "Interest Payment Date," commencing on __________, 1997), to the Person in whose name such Debenture or any predecessor Debenture is registered, at the close of business on the 11 18 regular record date for such interest installment, which, in respect of (i) Debentures of which the Property Trustee is the Holder and the Preferred Securities are in book-entry only form or (ii) a Global Debenture, shall be the close of business on the Business Day next preceding that Interest Payment Date. Notwithstanding the foregoing sentence, if (i) the Debentures are held by the Property Trustee and the Preferred Securities are no longer in book-entry only form or (ii) the Debentures are not represented by a Global Debenture, the record dates for payment of interest will be the 15th day of the last month of the calendar quarter. (b) The amount of interest payable for any period will be computed on the basis of a 360-day year of twelve 30-day months. Except as provided in the following sentence, the amount of interest payable for any period shorter than a full quarterly period for which interest is computed, will be computed on the basis of the actual number of days elapsed in such a 30-day period. 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 will be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay) 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 other 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 will pay as additional interest ("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 will 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. The Debentures shall be signed on behalf of the Company by its 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 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 Securities shall be authenticated and delivered or disposed of such Person shall have ceased to be the President or a Vice President, or the Secretary or an Assistant Secretary, of the Company. 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 Securities. The Securities may contain such notations, legends or endorsements required by law, stock exchange rule or usage. Each Security shall be dated the date of its authentication by the Trustee. A Security 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 Security so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities of any series executed by the Company to the Trustee for authentication, together with a written order of the Company for the authentication and delivery of such Securities, signed by its 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 Securities. In authenticating such Securities and accepting the additional responsibilities under this Indenture in relation to such Securities, the Trustee shall be entitled to receive, and (subject to Section 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. The Trustee shall not be required to authenticate such Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner that is not reasonably acceptable to the Trustee. 12 19 SECTION 2.7 REGISTRATION OF TRANSFER AND EXCHANGE. (a) Securities may be exchanged upon presentation thereof at the office or agency of the Company designated for such purpose in the Borough of Manhattan, the City and State of New York, for other Securities 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. In respect of any Securities so surrendered for exchange, the Company shall execute, the Trustee shall authenticate and such office or agency shall deliver in exchange therefor the Security or Securities that the Securityholder making the exchange shall be entitled to receive, bearing numbers not contemporaneously outstanding. (b) The Company shall keep, or cause to be kept, at its office or agency designated for such purpose in the Borough of Manhattan, the City and State of New York, or such other location designated by the Company a register or registers (herein referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall register the Securities and the transfers of Securities as in this Article provided and which at all reasonable times shall be open for inspection by the Trustee. The registrar for the purpose of registering Securities and transfer of Securities as herein provided shall be appointed as authorized by Board Resolution (the "Security Registrar"). Upon surrender for transfer of any Security 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 Security or Securities for a like aggregate principal amount. All Securities presented or surrendered for exchange or registration of transfer, as provided in this Section, shall be accompanied (if so required by the Company or the Security Registrar) by a written instrument or instruments of transfer, in form satisfactory to the Company or the Security 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 Securities, or issue of new Securities in case of partial redemption of any series, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, other than exchanges pursuant to Section 2.8, the second paragraph of Section 3.5 and Section 11.4 not involving any transfer. (d) The Company shall not be required (i) to issue, exchange or register the transfer of any Securities 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 Securities of the same series and ending at the close of business on the day of such mailing, nor (ii) to register the transfer of or exchange any Securities of any series or portions thereof called for redemption. The provisions of this Section 2.7 are, with respect to any Global Security, subject to Section 2.4 hereof. SECTION 2.8 TEMPORARY SECURITIES. Pending the preparation of definitive Securities, the Company may execute, and the Trustee shall authenticate and deliver, temporary Securities (printed, lithographed, or typewritten). Such temporary Securities shall be substantially in the form of the definitive Securities in lieu of which they are issued, but with such omissions, insertions and variations as may be appropriate for temporary Securities, all as may be determined by the Company. Every temporary Security 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 Securities. Without unnecessary delay the Company will execute and will furnish definitive Securities and thereupon any or all temporary Securities may be surrendered in exchange therefor (without charge to the holders), at the office or agency of the Company designated for the purpose in the Borough of Manhattan, the City and State of New York, and the Trustee shall authenticate and such office or agency shall deliver in exchange for such temporary Securities an equal aggregate principal amount of definitive Securities, unless the Company advises the Trustee to the effect that definitive Securities need not be executed and furnished until further notice from the Company. Until so exchanged, the temporary Securities shall be entitled to the same benefits under this Indenture as definitive Securities authenticated and delivered hereunder. 13 20 SECTION 2.9 MUTILATED, DESTROYED, LOST OR STOLEN SECURITIES. In case any temporary or definitive Security 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 Security of the same series, bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Security, or in lieu of and in substitution for the Security so destroyed, lost or stolen. In every case the applicant for a substituted Security 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 Security and of the ownership thereof. The Trustee may authenticate any such substituted Security and deliver the same upon the written request or authorization of any officer of the Company. Upon the issuance of any substituted Security, 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 Security 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 Security, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated Security) 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 Security and of the ownership thereof. Every replacement Security issued pursuant to the provisions of this Section shall constitute an additional contractual obligation of the Company whether or not the mutilated, destroyed, lost or stolen Security 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 Securities of the same series duly issued hereunder. All Securities 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 Securities, 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 Securities 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 Securities 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 Securities held by the Trustee. In the absence of such request the Trustee may dispose of canceled Securities in accordance with its standard procedures and deliver a certificate of disposition to the Company. If the Company shall otherwise acquire any of the Securities, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities 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 Securities, express or implied, shall give or be construed to give to any Person, other than the parties hereto and the holders of the Securities (and, with respect to the provisions of Article Sixteen, 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 Securities (and, with respect to the provisions of Article Sixteen, the holders of Senior Indebtedness). 14 21 SECTION 2.12 AUTHENTICATING AGENT. So long as any of the Securities of any series remain Outstanding there may be an Authenticating Agent for any or all such series of Securities which the Trustee shall have the right to appoint. Said Authenticating Agent shall be authorized to act on behalf of the Trustee to authenticate Securities of such series issued upon exchange, transfer or partial redemption thereof, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. All references in this Indenture to the authentication of Securities by the Trustee shall be deemed to include authentication by an Authenticating Agent for such series. 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. 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 and in accordance with the terms established pursuant to this Article Three. 15 22 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(a) but subject to Section 3.3(b), the Company shall have the right upon not less than 30 days nor more than 60 days notice to the Holders of the Debentures to redeem the Debentures, in whole but not in part, for cash within 90 days following the occurrence of such Special Event (the "90-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 90-Day Period, the Tax Event by taking some ministerial action ("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 the Trust is pursuing any Ministerial Action pursuant to its obligations under the Declaration. 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 _________, 2001, 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 "Optional Redemption Price"). Any redemption pursuant to this paragraph will be made upon not less than 30 days nor more than 60 days notice to the Holder of the Debentures, at the Optional Redemption Price. If the Debentures are only partially redeemed pursuant to this Section 3.3, the Debentures will be redeemed pro rata or by lot or by any other method utilized by the Trustee; provided, that if at the time of redemption the Debentures are registered as a Global Debenture, the Depositary shall determine, in accordance with its procedures, the principal amount of such Debentures held by each Holder of Debenture to be redeemed. The Optional 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 Optional Redemption Price by 10:00 a.m., New York time, on the date such Optional 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 National Market or any national securities exchange or other organization on which the Preferred Securities are then listed, the Company shall not be permitted to effect such partial redemption and may only redeem the Debentures in whole. 16 23 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 prior written notice from the Company, 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 Security 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 Security 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 of such series or any other series. 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 at which Debentures of that series are to be redeemed, and shall state that payment of the redemption price of such Debentures to be redeemed will be made at the office or agency of the Company in the Borough of Manhattan, the City and State of New York or that the Corporate Trust Office, upon presentation and surrender of such Debentures, that interest accrued to the date fixed for redemption will be paid as specified in said notice, that from and after said date interest will cease to accrue. If less than all the Debentures of a series are to be redeemed, the notice to the holders of Debentures of that series to be redeemed in whole or in part shall specify the particular Debentures to be so redeemed. In case any Security is to be redeemed in part only, the notice that relates to such Security 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 Security, a new Security or Debentures of such series in principal amount equal to the unredeemed portion thereof. (b) If less than all the Debentures of a series 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 of the series 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 and that may provide for the selection of a portion or portions (equal to twenty-five U.S. dollars ($25) or any integral multiple thereof) of the principal amount of such Debentures of a denomination larger than $25, 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. 17 24 The Company may, if and whenever it shall so elect, 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 of a particular series for redemption and to give notice of redemption in the manner set forth in this Section, 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 Security 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. 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 Security 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 applicable redemption price, together with interest accrued thereon to the date fixed for redemption (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 Security is presented shall deliver to the holder thereof, at the expense of the Company, a new Security or Debentures of the same series of authorized denominations in principal amount equal to the unredeemed portion of the Security so presented. SECTION 3.6. NO SINKING FUND. The Debentures are not entitled to the benefit of any sinking fund. ARTICLE IV EXTENSION OF INTEREST PAYMENT PERIOD SECTION 4.1. EXTENSION OF INTEREST PAYMENT PERIOD. The Company shall have the right, at any time and from time to time during the term of the Debentures, to defer payments of interest by extending the interest payment period of such 18 25 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. To the extent permitted by applicable law, interest, the payment of which has been deferred because of the extension of the interest payment period pursuant to this Section 4.1, will bear interest thereon at the Coupon Rate compounded quarterly for each quarter of the Extended Interest Payment Period ("Compounded Interest"). At the end of the Extended Interest Payment Period, the Company shall calculate (and deliver such calculation to the Trustee) and pay all interest accrued and unpaid on the Debentures, including any Additional Interest and Compounded Interest (together, "Deferred Interest") that shall be payable to the Holders of the Debentures in whose names the Debentures are registered in the Security 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 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 one Business Day 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 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 one Business Day 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 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. 19 26 SECTION 4.3. LIMITATION OF 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, as defined in the Indenture, then (a) the Company shall not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock or (b) the Company shall not make any payment of interest, principal or premium, if any, on or repay, repurchase or redeem any debt securities issued by the Company which rank pari passu with or junior to the Debentures; (other than (i) purchases or acquisitions of shares of its common stock in connection with the satisfaction by the Company of its obligations under any employee benefit plans or the satisfaction by the Company of its obligations pursuant to any contract or security requiring the Company to purchase shares of its common stock, (ii) the purchase of fractional interests in shares of its capital stock pursuant to the conversion or exchange provisions of such capital stock or security being converted or exchanged, (iii) payments under the Guaranty (iv) dividends or distributions in Common Stock of the Company, or (v) any declaration of a 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 or any such rights pursuant thereto). ARTICLE V. PARTICULAR COVENANTS OF THE COMPANY SECTION 5.1. PAYMENT OF PRINCIPAL AND INTEREST. The Company will 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 and established with respect to such Debentures. SECTION 5.2. MAINTENANCE OF AGENCY. So long as any of the Securities remain Outstanding, the Company agrees to maintain an office or agency in the Borough of Manhattan, the City and State of New York, and at such other location or locations as may be designated as provided in this Section 5.2, where (i) Securities may be presented for payment, (ii) Securities 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 Securities 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. 20 27 SECTION 5.3. PAYING AGENTS. (a) If the Company shall appoint one or more paying agents for all of the Securities, other than the Trustee, the Company will 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: (i) that it will hold all sums held by it as such agent for the payment of the principal of (and premium, if any) or interest on the Securities (whether such sums have been paid to it by the Company or by any other obligor of such Securities) in trust for the benefit of the Persons entitled thereto; (ii) that it will give the Trustee notice of any failure by the Company (or by any other obligor of such Securities) to make any payment of the principal of (and premium, if any) or interest on the Securities when the same shall be due and payable; (iii) that it will, 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 will 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 Securities, it will on or before each due date of the principal of (and premium, if any) or interest on Securities, set aside, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay such principal (and premium, if any) or interest so becoming due on Securities of that series until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of such action, or any failure (by it or any other obligor on such Securities) to take such action. Whenever the Company shall have one or more paying agents for any of the Securities, it will, prior to each due date of the principal of (and premium, if any) or interest on any Securities, deposit with the paying agent a sum sufficient to pay the principal (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal, premium or interest, and (unless such paying agent is the Trustee) the Company will promptly notify the Trustee of this action or failure so to act. (c) Notwithstanding anything in this Section to the contrary, (i) the agreement to hold sums in trust as provided in this Section is subject to the provisions of Section [13.5], 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 21 28 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, will 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 will not, while any of the Securities 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 Twelve hereof are complied with. SECTION 5.6. LIMITATION ON DIVIDENDS; TRANSACTIONS WITH AFFILIATES. If Securities are issued to a IBC Capital or a trustee of IBC Capital in connection with the issuance of Trust Securities by IBC Capital and (i) there shall have occurred any event that would constitute an Event of Default, (ii) IBC Capital shall be in default with respect to its payment of any obligations under the Preferred Securities Guarantee relating to IBC Capital or (iii) the Company shall have given notice of its election to defer payments of interest on such Securities by extending the interest payment period as provided in the Indenture and such period, or any extension thereof, shall be continuing, then (a) the Company shall not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase or make a liquidation payment with respect to, any of its capital stock, and (b) the Company shall not make any payment of interest, principal 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 (other than (a) dividends or distributions in Common Stock, (b) any declaration of a 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, (c) payments under the Guarantee, and (d) purchases of Common Stock related to rights under any of the Company's benefit plans for its directors, officers or employees. SECTION 5.7. COVENANTS AS TO IBC CAPITAL. For so long as such Trust Securities of IBC Capital remain outstanding, the Company will (i) maintain 100% direct or indirect ownership of the Common Securities of IBC Capital; provided, however, that any permitted successor of the Company under the Indenture may succeed to the Company's ownership of the Common Securities, (ii) not to voluntarily terminate, wind up or liquidate IBC Capital, except upon prior approval of the Federal Reserve if then so required under applicable capital guidelines or policies of the Federal Reserve and to use its reasonable efforts, consistent with the terms of the Trust Agreement, to cause IBC Capital (a) to remain a business trust, except in connection with a distribution of Securities, the redemption of all of the Trust Securities of IBC Capital or certain mergers, consolidations or amalgamations, each as permitted by the Trust Agreement of IBC Capital, 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) to use its reasonable efforts, consistent with the terms of the Trust Agreement, to cause each holder of Trust Securities to be treated as owning an individual beneficial interest in the Securities. 22 29 If the Debentures are to be issued as a Global Debenture 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 will use its best efforts to list such Debentures on the Nasdaq National Market or on such other exchange as the Preferred Securities are then listed. ARTICLE VI. SECURITYHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE SECTION 6.1. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF SECURITYHOLDERS. The Company will furnish or cause to be furnished to the Trustee (a) on a quarterly basis on each regular record date (as defined in Section 2.5(a)) a list, in such form as the Trustee may reasonably require, of the names and addresses of the holders of each series of Securities as of such regular record date 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 for any series for which the Trustee shall be the Security Registrar. SECTION 6.2. PRESERVATION OF INFORMATION COMMUNICATIONS WITH SECURITYHOLDERS. (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 Securities 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 Securities received by the Trustee in its capacity as Security Registrar (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) Securityholders may communicate as provided in Section 312(b) of the Trust Indenture Act with other Securityholders with respect to their rights under this Indenture or under the Securities. SECTION 6.3. REPORTS BY THE COMPANY. (a) The Company covenants and agrees to file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) that the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Exchange Act; or, if the Company is not required to file 23 30 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 the Nasdaq National Market or 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 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 Securityholders, as their names and addresses appear upon the Security 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 as may be required by rules and regulations prescribed from time to time by the Commission. SECTION 6.4. REPORTS BY THE TRUSTEE. (a) On or before July 15 in each year in which any of the Securities are Outstanding, the Trustee shall transmit by mail, first class postage prepaid, to the Securityholders, as their names and addresses appear upon the Security 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 Securityholders, be filed by the Trustee with the Company, with each stock exchange upon which any Securities are listed (if so listed) and also with the Commission. The Company agrees to notify the Trustee when any Securities become listed on any stock exchange. ARTICLE VII. REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT SECTION 7.1. EVENTS OF DEFAULT. 24 31 (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 of (or premium, if any, on) any of 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 Securities in accordance with the terms of any indenture supplemental hereto shall not constitute a default in the payment of principal or premium, if any; (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 or the Guarantor, and the order or decree remains unstayed and in effect for 90 days; or (vi) IBC Capital shall have voluntarily or involuntarily dissolved, wound-up its business or otherwise 25 32 terminated its existence except in connection with (i) the distribution of Securities to holders of Trust Securities in liquidation of their interests in IBC Capital, (ii) the redemption of all of the outstanding Trust Securities of IBC Capital or (iii) certain mergers, consolidations or amalgamation, each as permitted by the Trust Agreement of IBC Capital. (b) In each and every such case, unless the principal of all the Securities shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Securities then Outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by such Securityholders) may declare the principal of all the Securities 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 Securities. (c) At any time after the principal of the Securities of that series 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 Securities 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 Securities of that series and the principal of (and premium, if any, on) any and all Debentures that shall have become due otherwise than by acceleration (with interest upon such principal and premium, if any, and, to the extent that such payment is enforceable under applicable law, upon overdue installments of interest, at the rate per annum expressed in the Debentures to the date of such payment or deposit) and the amount payable to the Trustee under Section 9.6, and (ii) any and all Events of Default under the 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 the 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. 26 33 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 Securities of a series, 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 (or premium, if any, on) any of the Securities when the same shall have become due and payable, whether upon maturity of the Securities or upon redemption or upon declaration or otherwise, then, upon demand of the Trustee the Guarantor will pay to the Trustee, for the benefit of the holders of the Securities, the whole amount that then shall have been become due and payable on all such Securities for principal (and premium, if any) or interest, or both, as the case may be, with interest upon the overdue principal (and premium, if any) and (to the extent that payment of such interest is enforceable under applicable law and, if the Securities are held by a IBC Capital or a trustee of such trust, without duplication of any other amounts paid by IBC Capital or trustee in respect thereof) upon overdue installments of interest at the rate per annum expressed in the Securities; 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 9.6. (b) If the Company shall fail to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any action or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or other obligor upon the Securities, wherever situated. (c) In case of any receivership, insolvency, liquidation, bankruptcy, reorganization, readjustment, arrangement, composition or judicial proceedings affected the Company or the creditors or property of either, the Trustee shall have power to intervene in such proceedings and take any action therein that may be permitted by the court and shall (except as may be otherwise provided by law) be entitled to file such proofs of claim and other papers and documents as may be necessary or advisable in order to have the claims of the Trustee and of the holders of the Securities allowed for the entire amount due and payable by the Company under the 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 9.6; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the holders of the Securities to make such payments to the Trustee, and, in the event that the Trustee shall consent to the 27 34 making of such payments directly to such Securityholders, to pay to the Trustee any amount due it under Section 9.6. (d) All rights of action and of asserting claims under this Indenture, or under any of the terms established with respect to Securities, may be enforced by the Trustee without the possession of any of such Securities, 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 9.6, be for the ratable benefit of the holders of the Securities. 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 the 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 Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities of that series or the rights of any holder thereof or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceeding. SECTION 7.3. APPLICATION OF MONEYS COLLECTED Any moneys collected by the Trustee pursuant to this Article with respect to the Securities 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 premium, if any) or interest, upon presentation of the Securities, and notation thereon the payment, if only partially paid, and upon surrender thereof if fully paid: FIRST: To the payment of costs and expenses of collection and of all amounts payable to the Trustee under Section 9.6; SECOND: To the payment of all Senior Indebtedness of the Company if and to the extent required by Article Sixteen; and THIRD: To the payment of the amounts then due and unpaid upon Securities for principal (and premium, if any) 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 Securities for principal (and premium, if any) and interest, respectively. 28 35 SECTION 7.4. LIMITATION ON SUITS. No holder of any Security 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 Securities specifying such Event of Default, as hereinbefore provided; (ii) the holders of not less than 25% in aggregate principal amount of the Securities 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 Securities of that series do not give the Trustee a direction inconsistent with the request. Notwithstanding anything contained herein to the contrary, any other provisions of this Indenture, the right of any holder of any Security to receive payment of the principal of (and premium, if any) and interest on such Security, as therein provided, on or after the respective due dates expressed in such Security (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 Security hereunder it is expressly understood, intended and covenanted by the taker and holder of every Security with every other such taker and holder and the Trustee, that no one or more holders of Securities 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 Securities, 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 Securities. For the protection and enforcement of the provisions of this Section, each and every Securityholder 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 to the Trustee or to the Securityholders 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 Securities, 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 Securities. (b) No delay or omission of the Trustee or of any holder of any of the Securities to exercise any right or power accruing upon any Event of Default occurring and continuing 29 36 as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or on acquiescence therein; and, subject to the provisions of Section 7.4, every power and remedy given by this Article or by law to the Trustee or the Securityholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Securityholders. SECTION 7.6. CONTROL BY SECURITYHOLDERS. The holders of a majority in aggregate principal amount of the Securities 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 or be unduly prejudicial to the rights of holders of Securities of any other series at the time Outstanding determined in accordance with Section 10.4 hereof. 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 Securities of any series at the time Outstanding affected thereby, determined in accordance with Section 10.4, may on behalf of the holders of all of the Securities of such series 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 premium, if any, or interest on, any of the Securities as and when the same shall become due by the terms of such Securities otherwise than by acceleration (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal and any premium 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 under Article Eleven cannot be modified or amended without the consent of the Holder of each Outstanding Security affected; provided, however, that if the Debentures are held by a IBC Capital or a trustee of such 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 IBC Capital shall have consented to such waiver or modification to such waiver; provided further, that if the consent of the Holder of each Outstanding Debt Security is required, such waiver shall not be effective until each holder of the Trust Securities of IBC Capital 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 Securities 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 Securities 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 30 37 Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder, or group of Securityholders, holding more than 10% in aggregate principal amount of the Outstanding Debentures, or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of (or premium, if any) or interest on any 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 to this Indenture, attached hereto and incorporated herein by reference. SECTION 8.2. ORIGINAL ISSUE OF DEBENTURES Debentures in the aggregate principal amount of $17,250,000 may, upon execution of this Indenture, be executed by the Company and delivered to the Trustee for authentication, and 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 THE TRUSTEE SECTION 9.1. CERTAIN DUTIES AND RESPONSIBILITIES TRUSTEE. (a) The Trustee prior to the occurrence of an Event of Default with respect to the Securities of a series and after the curing of all Events of Default with respect to the Debentures that may have occurred, shall undertake to perform with respect to the Securities of such series 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 with respect to the Debentures has occurred (that has not been cured or waived), the Trustee shall exercise with respect to Debentures 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. 31 38 (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 with respect to the Debentures and after the curing or waiving of all such Events of Default with respect to the Debentures 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 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 requirement 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. 32 39 SECTION 9.2 Notice of Defaults. Within 90 days after actual knowledge by a Responsible Officer of the Trustee of the occurrence of any default hereunder with respect to the Securities, the Trustee shall transmit by mail to all holders of Securities, as their names and addresses appear in the Securities Register, notice of such default, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal or (or premium, if any) or interest (including any Additional Interest) on any Security, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of 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 Securities; and provided, further, that in the case of any default of the character specified in Section 5.1(a)(3), no such notice to holder of Securities shall be given until at least 30 days after the occurrence thereof. For the purposes of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to the Securities. 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 notification of such Event of Default from the Company or by holders of at least 25% of the aggregate principal amount of the Securities 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 Securityholders, pursuant to the provisions of this Indenture, unless such Securityholders 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 with respect to the Securities (that has not been cured or waived) to exercise with respect to the Securities 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 Securities affected thereby (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 33 40 reasonable expense of every such examination shall be paid by the Company or, if paid by the Trustee, shall be repaid by the Company upon demand; and (h) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 9.4. TRUSTEE NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OR SECURITIES. (a) The recitals contained herein and in the Securities 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 Securities. (c) The Trustee shall not be accountable for the use or application by the Company of any of the Securities or of the proceeds of such Securities, 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 SECURITIES. The Trustee or any paying agent or Security Registrar, in its individual or any other capacity, may become the owner or pledgee of Securities with the same rights it would have if it were not Trustee, paying agent or Security 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 34 41 provided herein, the Company will 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. (b) The obligations of the Company under this Section 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 Securities 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 Securities. 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 million U.S. dollars ($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 35 42 purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. 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, the Trustee shall resign immediately in the manner and with the effect specified in Section 9.10. SECTION 9.11. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. (a) The Trustee or any successor hereafter appointed, may at any time resign with respect to the Securities by giving written notice thereof to the Company and by transmitting notice of resignation by mail, first class postage prepaid, to the Securityholders, as their names and addresses appear upon the Security Register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee with respect to Securities 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 Securities, or any Securityholder who has been a bona fide holder of a Security or Securities for at least six months may, subject to the provisions of Section 9.8, 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 subsection (a) of Section [9.8] after written request therefor by the Company or the Guarantor or by any Securityholder who has been a bona fide holder of a Security or Securities for at least six months; or (ii) the Trustee shall cease to be eligible in accordance with the provisions of Section 9.9 and shall fail to resign after written request therefor by the Company or by any such Securityholder; 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 Securities 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 36 43 removed and one copy to the successor trustee, or, subject to the provisions of Section 9.8, unless the Trustee's duty to resign is stayed as provided herein, any Securityholder who has been a bona fide holder of a Security or Securities 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 Securities 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 Securities pursuant to any of the provisions of this Section shall become effective upon acceptance of appointment by the successor trustee as provided in Section 9.11. (e) Any successor trustee appointed pursuant to this Section may be appointed with respect to the Securities, and at any time there shall be only one Trustee with respect to the Securities. SECTION 9.12. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. In case of the appointment hereunder of a successor trustee with respect to the Securities, every such successor trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor trustee all the rights, powers, and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor trustee all property and money held by such retiring Trustee hereunder. 37 44 (b) upon request of any such successor trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor trustee all such rights, powers and trusts referred to in paragraph (a) of this Section, as the case may be. (c) No successor trustee shall accept its appointment unless at the time of such acceptance such successor trustee shall be qualified and eligible under this Article. (d) Upon acceptance of appointment by a successor trustee as provided in this Section, the Company shall transmit notice of the succession of such trustee hereunder by mail, first class postage prepaid, to the Securityholders, as their names and addresses appear upon the Security 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 and the Guarantor. 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 substantially all of the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided that such corporation shall be 38 45 qualified under the provisions of Section 9.8 and eligible under the provisions of Section 9.9, 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 Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 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. ARTICLE X CONCERNING THE SECURITYHOLDERS SECTION 10.1. EVIDENCE OF ACTION BY SECURITYHOLDERS. Whenever in this Indenture it is provided that the holders of a majority or specified percentage in aggregate principal amount of the Securities 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 Securities in Person or by agent or proxy appointed in writing. If the Company shall solicit from the Securityholders 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 Securityholders 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 Securityholders of record at the close of business on the record date shall be deemed to be Securityholders for the purposes of determining whether Securityholders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other action, and for that purpose the Outstanding Securities shall be computed as of the record date; provided, however, that no such authorization, agreement or consent by such Securityholders 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. 39 46 SECTION 10.2. PROOF OF EXECUTION BY SECURITYHOLDERS. Subject to the provisions of Section 9.1, proof of the execution of any instrument by a Securityholder (such proof will not require notarization) or his agent or proxy and proof of the holding by any Person of any of the Securities 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 Securities shall be proved by the Security Register of such Securities or by a certificate of the Security Registrar thereof. (c) The Trustee may require such additional proof of any matter referred to in this Section as it shall deem necessary. SECTION 10.3. WHO MAY BE DEEMED OWNERS. Prior to the due presentment for registration of transfer of any Security, the Company, the Trustee, any paying agent and any Security Registrar may deem and treat the Person in whose name such Security shall be registered upon the books of the Company as the absolute owner of such Security (whether or not such Security shall be overdue and notwithstanding any notice of ownership or writing thereon made by anyone other than the Security Registrar) for the purpose of receiving payment of or on account of the principal of, premium, if any, and (subject to Section 2.3) interest on such Security and for all other purposes; and neither the Company nor the Trustee nor any paying agent nor any Security Registrar shall be affected by any notice to the contrary. SECTION 10.4. CERTAIN SECURITIES OWNED BY COMPANY DISREGARDED. In determining whether the holders of the requisite aggregate principal amount of Securities have concurred in any direction, consent of waiver under this Indenture, the Securities that are owned by the Company or any other obligor on the Securities or by any Person directly or indirectly controlling or controlled by or under common control with the Company or any other obligor on the Securities 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 Securities that the Trustee actually knows are so owned shall be so disregarded. The Securities so owned that have been pledged in good faith may be regarded as Outstanding for the purposes of this Section, if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities 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. 40 47 SECTION 10.5. ACTIONS BINDING ON FUTURE SECURITYHOLDERS. 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 Securities specified in this Indenture in connection with such action, any holder of a Security that is shown by the evidence to be included in the Securities 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 Security. Except as aforesaid any such action taken by the holder of any Security shall be conclusive and binding upon such holder and upon all future holders and owners of such Security, and of any Security 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 Security. Any action taken by the holders of the majority or percentage in aggregate principal amount of the Securities specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the holders of all the Securities. ARTICLE XI. SUPPLEMENTAL INDENTURES SECTION 11.1. SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF SECURITYHOLDERS. 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 Securityholders, for one or more of the following purposes: (a) to cure any ambiguity, defect, or inconsistency herein, in the Securities; (b) to comply with Article Ten; (c) to provide for uncertificated Securities in addition to or in place of certificated Securities; (d) to add to the covenants of the Company for the benefit of the holders of all of the Securities 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 Securities, as herein set forth; 41 48 (f) to make any change that does not adversely affect the rights of any Securityholder in any material respect; (g) to provide for the issuance of and establish the form and terms and conditions of the Securities of any series, to establish the form of any certifications required to be furnished pursuant to the terms of this Indenture of Securities, or to add to the rights of the holders of Securities; or (h) qualify or maintain the qualification of the 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 may be executed by the Company and the Trustee without the consent of the holders of any of the Securities at the time Outstanding, notwithstanding any of the provisions of Section 11.2. SECTION 11.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF SECURITYHOLDERS. 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 Securities 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 Securities 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 Securities, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, or reduce any premium payable upon the redemption thereof, without the consent of the holder of each Security so affected or (ii) reduce the aforesaid percentage of Securities, the holders of which are required to consent to any such supplemental indenture provided, further, that if the Debentures are held by IBC Capital or a trustee of such trust, such supplemental indenture shall not be effective until the holders of a majority in liquidation preference of Trust Securities of IBC Capital shall have consented to such supplemental indenture; provided further, that if the consent of the Holder of each Outstanding Debt Security is required, such supplemental indenture shall not be effective until each holder of the Trust Securities of IBC Capital shall have consented to such supplemental indenture. It shall not be necessary for the consent of the Securityholders of any series affected thereby under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. 42 49 SECTION 11.3. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture pursuant to the provisions of this Article or of Section 10.1, 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 Securities 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. SECURITIES AFFECTED BY SUPPLEMENTAL INDENTURES. Securities affected by a supplemental indenture, authenticated and delivered after the execution of such supplemental indenture pursuant to the provisions of this Article or of Section 11.1, may bear a notation in form approved by the Company, provided such form meets the requirements of any exchange upon which the Securities may be listed as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of that series 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 Securities then Outstanding. SECTION 11.5. EXECUTION OF SUPPLEMENTAL INDENTURES. Upon the request of the Company, accompanied by their Board Resolutions authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Securityholders 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 Section 9.1, may receive an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article is authorized or permitted by, and conforms to, the terms of this Article and that it is proper for the Trustee under the provisions of this Article to join in the execution thereof. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section, 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 Securityholders as their names and addresses appear upon the Security 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. 43 50 ARTICLE XII. SUCCESSOR CORPORATION SECTION 12.1. COMPANY MAY CONSOLIDATE, ETC. Nothing contained in this Indenture or in any of the Securities 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, the Company hereby covenants and agree 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 (premium, if any) and interest on all of the Debentures, according to their tenor and the due and punctual performance and observance of all the covenants and conditions of this Indenture to be kept or performed by the Company as the case may be, shall be expressly assumed, by supplemental indenture (which shall conform to the provisions of the Trust Indenture Act, as then in effect) satisfactory in form to the Trustee executed and delivered to the Trustee by the entity formed by such consolidation, or into which the Company, as the case may be, shall have been merged, or by the entity which shall have acquired such property; (ii) in case the Company consolidates with or merges into another Person or conveys or transfers its properties and assets substantially then as an entirety to any Person, the successor Person is organized under the laws of the United States or any state or the District of Columbia, and (iii) immediately after giving effect thereto, in Event of Default, and no event which, after notice or lapse of time or both, would become an Event of Default, shall have occurred and be continuing. SECTION 12.2. SUCCESSOR CORPORATION SUBSTITUTED. (a) In case of any such consolidation, merger, sale, conveyance, transfer or other disposition and upon the assumption by the successor corporation, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of, in the case of the Company, the due and punctual payment of the principal of, premium, if any, and interest on all of the Debentures Outstanding and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Company, as the case may be such successor corporation shall succeed to and be substituted for the Company with the same effect as if it had been named as the Company herein, and thereupon the predecessor corporation shall be relieved of all obligations and covenants under this Indenture and the Securities. (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 Securities thereafter to be issued as may be appropriate. 44 51 (c) Nothing contained in this Indenture or in any of the Securities 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. 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 Securities theretofore authenticated (other than any Securities that shall have ben destroyed, lost or stolen and that shall have been replaced or paid as provided in Section 2.9) and Securities 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 all such Securities 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 Securities not theretofore delivered to the Trustee for cancellation, including principal (and premium, if any) 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 with respect to 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 such Securities 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 to pay at maturity or upon redemption all such Securities not theretofore delivered to the Trustee for cancellation, including principal 45 52 (and premium, if any) 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 Securities 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 Securities 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 premium or interest on the Securities that are not applied but remain unclaimed by the holders of such Securities for at least two years after the date upon which the principal of (and premium, if any) or interest on such Securities shall have respectively become due and payable, shall be repaid to the Company, upon written request by the Company, 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 Securities entitled to receive such payment shall thereafter, as an unsecured general creditor, look only to the Company or the Guarantor 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 any Security, 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 46 53 any predecessor or successor corporation, either directly or through the Company or the Guarantor 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 Securities or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, stockholder, officer or director as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Securities 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 Securities. 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, as the case may be. SECTION 15.3. SURRENDER OF COMPANY POWERS. The Company by instrument in writing executed by authority of 2/3 (two-thirds) 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 Securities 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 47 54 with the Trustee), as follows: c/o Independent Bank Corporation, 230 West Main Street, Ionia, Michigan 48846, Attention Chief Financial Officer. Any notice, election, request or demand by the Company or any Securityholder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if received in writing at the Corporate Trust Office of the Trustee. SECTION 15.5. GOVERNING LAW. This Indenture and each Security shall be deemed to be a contract made under the internal laws of the State of Michigan 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 will 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) 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 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. Except as provided pursuant to Section 2.1 pursuant to a Board Resolution, and as set forth in an Officers' Certificate, or established in one or more indentures supplemental to this Indenture, in any case where the date of maturity of interest or principal of any Security or the date of redemption of any Security shall not be a Business Day, then payment of interest or principal (and premium, if any) may be made on the next succeeding Business Day with the same force and effect 48 55 as if made on the nominal date of maturity or redemption, and no interest shall accrue for the period after such nominal date. SECTION 15.9. CONFLICT WITH TRUST INDENTURE ACT. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with the duties imposed by Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. SECTION 15.10. COUNTERPARTS. This Indenture may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. SECTION 15.11. SEPARABILITY. In case any one or more of the provisions contained in this Indenture or in the Securities of any series 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 such Securities, but this Indenture and such Securities 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 will 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, as the case may be, will remain liable for all such obligations. Subject to the foregoing, the 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 IBC Capital or a trustee of such trust, if the Property Trustee fails to enforce its rights under this Indenture as the holder of the series of Debentures held as the assets of IBC Capital 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 Securities 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 Securities having a principal amount equal to the aggregate liquidation amount of the Preferred 49 56 Securities of such holder on or after the respective due date specified in the Applicable Series of Securities. ARTICLE XVI. SUBORDINATION OF SECURITIES 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 Debt Security, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment by the Company of the principal of, premium, if any, 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, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article XVI shall prevent the occurrence of any default or Event of Default hereunder. SECTION 16.2. DEFAULT ON SENIOR DEBT, SUBORDINATED DEBT OR ADDITIONAL SENIOR OBLIGATIONS. In the event and during the continuation of any default by the Company in the payment of principal, premium, interest or any other payment due on any Senior Debt, Subordinated Debt or Additional Senior Obligations of the Company, as the case may be, or in the event that the maturity of any Senior Debt, Subordinated Debt or Additional Senior Obligations of the Company (collectively, "Senior Indebtedness"), as the case may be, has been accelerated because of a default, then, in either case, no payment shall be made by the Company with respect to the principal (including redemption and sinking fund payments) of, or premium, if any, or interest 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 paragraph 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. 50 57 SECTION 16.3. LIQUIDATION; DISSOLUTION; BANKRUPTCY. 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 (and premium, if any) 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 the Indenture if received by them or it, directly to the holders of Senior Indebtedness of the Company (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, as calculated by the Company) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay such Senior Indebtedness in full, in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Senior Indebtedness, before any payment or distribution is made to the Holders of Debentures or to the Trustee. 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. 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 51 58 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 X of the Indenture 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 X of the Indenture. 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 9.6 of the Indenture. SECTION 16.4. SUBROGATION. 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 premium, if any) and interest on the Debentures shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of such Senior Indebtedness of any cash, property or securities to which the Holders of the Debentures or the Trustee would be entitled except for the provisions of this Article XVI, and no payment over pursuant to the provisions of this Article XVI to or for the benefit of the holders of such Senior Indebtedness by Holders of the Debentures or the Trustee, shall, as between the Company, its creditors other than Holders of Senior Indebtedness of the Company, and the holders of the Debentures, be deemed to be a payment by the Company to or on account of such Senior Indebtedness. It is understood that the provisions of this Article XVI are and are intended solely for the purposes of defining the relative rights of the Holders of the Debentures, on the one hand, and the holders of such Senior Indebtedness on the other hand. Nothing contained in this Article XIV 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 premium, if any) 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 Debt Security from exercising all remedies otherwise permitted by applicable law upon default under the 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. Upon any payment or distribution of assets of the Company referred to in this Article XVI, the Trustee, subject to the provisions of Section 9.1 of the Indenture, 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, 52 59 agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of the Debentures, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Company, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XVI. SECTION 16.5. TRUSTEE TO EFFECTUATE SUBORDINATION. Each Holder of Debentures by such Holder's acceptance thereof authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XVI and appoints the Trustee such Holder's attorney-in-fact for any and all such purposes. SECTION 16.6. NOTICE BY THE COMPANY. 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 of the Indenture, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 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 premium, if any) 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. The Trustee, subject to the provisions of Section 9.1 of the Indenture, shall be entitled to conclusively rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness of the Company, as the case may be (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 53 60 any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 16.7. RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS. 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 9.6 shall not be subject to the subordination provisions of this Article XVI. 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 of the Indenture, 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. 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, as the case may be, or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company, as the case may be, with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Senior 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, as the case may be, and any other Person. 54 61 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. INDEPENDENT BANK CORPORATION By:_____________________________________ Attest: ________________________________ STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE By:_____________________________________ STATE OF ) ) ss: COUNTY OF ) On the _______ day of _______________________________, 1996, before me personally came ______________________________to me known, who, being by me duly sworn, did depose and say that he is the of INDEPENDENT BANK CORPORATION, one of the corporations described in and which executed the above instrument; that he knows the corporate seal of said corporation; that the seal affixed to the said instrument is such corporation seal; that it was so affixed by authority of the Board of Directors of said corporation, and that he signed his name thereto by like authority. ________________________________________ Notary Public, ______________ County, MI [seal] My Commission expires: _________________ 55 62 EXHIBIT A (FORM OF FACE OF DEBENTURE) This Debenture is a Global Debenture within the meaning of the Indenture hereinafter referred to and is registered in the name of a Depositary or a nominee of a Depositary. This Debenture is exchangeable for Debentures registered in the name of a person other than the Depositary or its nominee only in the limited circumstances described in the Indenture, and no transfer of this Debenture (other than a transfer of this Debenture as a whole by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary) may be registered except in such limited circumstances. Unless this Debenture is presented by an authorized representative of State Street Bank and Trust Company ( address:________________________) to the issuer or its agent for registration of transfer, exchange or payment, and any Debenture issued is registered in the name of Cede & Co. or such other name as requested by an authorized representative of State Street Bank and Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL since the registered owner hereof, Cede & Co., has an interest herein. No. ______________________________ $ ____________________ CUSIP No. ________________________ INDEPENDENT BANK CORPORATION ___% SUBORDINATED DEBENTURE DUE ____________, 2026 Independent Bank Corporation, a Michigan corporation (the "Company", which term includes any successor corporation under the Indenture hereinafter referred to), for value received, hereby promises to pay to, ______________ or registered assigns, the principal sum of _____________ Dollars ($___________) on _________, 2026 (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 commencing ___________, 1997, at the rate of ___% per annum until the principal hereof shall have become due and payable, and on any overdue principal and premium, if any, and (without duplication and to the extent that payment of such interest is enforceable under applicable law) on any overdue installment of interest at the same rate per annum compounded quarterly. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on 56 63 which interest is payable on this Debenture is not a business day, then payment of interest payable on such date will be made on the next succeeding day that is a business day (and without any interest or other payment in respect of any such delay) in each case with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in the Indenture, be paid to the person in whose name this Debenture (or one or more Predecessor Securities, as defined in said Indenture) is registered at the close of business on the regular record date for such interest installment, which shall be the close of business on the business day next preceding such Interest Payment Date unless otherwise provided in the Indenture. Any such interest installment not punctually paid or duly provided for shall forthwith cease to be payable to the registered Holders on such regular record date and may be paid to the Person in whose name this Debenture (or one or more Predecessor Securities) is registered at the close of business on a special record date to be fixed by the Trustee for the payment of such defaulted interest, notice whereof shall be given to the registered Holders of this series of Debentures not less than 10 days prior to such special record date, or may be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Debentures may be listed, and upon such notice as may be required by such exchange, all as more fully provided in the Indenture. The principal of (and premium, if any) 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 Security Register. Notwithstanding the foregoing, so long as the Holder of this Debenture is the Property Trustee, the payment of the principal of (and premium, if any) and interest on this Debenture will be made at such place and to such account as may be designated by the Institutional Trustee. The Stated Maturity may be shortened at any time by the Company to any date not earlier than _________________, 2001, 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 ________________________, 2045, 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, and this Debenture is issued subject to the provisions of the Indenture with respect thereto. Each Holder of this Debenture, by accepting the same, (a) agrees to and shall be bound by such provisions, (b) authorizes and directs the Trustee on his or her behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination so provided and (c) appoints the Trustee his or her attorney-in-fact for any and all such purposes. Each Holder hereof, by his or her acceptance hereof, hereby waives all notice of the acceptance of the subordination provisions contained herein and in the Indenture by each holder of Senior Indebtedness, whether now outstanding or hereafter incurred, and waives reliance by each such holder upon said provisions. 57 64 This Debenture shall not be entitled to any benefit under the Indenture hereinafter referred to, be valid or become obligatory for any purpose until the Certificate of Authentication hereon shall have been signed by or on behalf of the Trustee. 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 ____________________________ INDEPENDENT BANK CORPORATION By:________________________________ Name: Title: Attest: By: ______________________________ Name: Title: 58 65 [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 59 66 [FORM OF REVERSE OF DEBENTURE] ______________% SUBORDINATED DEBENTURE (CONTINUED) This Debenture is one of the subordinated debentures of the Company (herein sometimes referred to as the "Debentures"), specified in the Indenture, all issued or to be issued under and pursuant to an Indenture dated as of _____________, 1996 (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. Because of the occurrence and continuation of a Tax Event or Investment Company Event, in certain circumstances, this Debenture may become due and payable at the principal amount together with any interest accrued thereon, to the date of such redemption (the "Redemption Price"). The Redemption Price shall be paid prior to 12:00 noon, Eastern Standard Time, time, on the date of such redemption or at such earlier time as the Company determines. The Company shall have the right to redeem this Debenture at the option of the Company, without premium or penalty, in whole or in part at any time on or after ________, 2001 (an "Optional Redemption"), or at any time in certain circumstances upon the occurrence of a Tax Event or Investment Company Event, at the Redemption Price. Any redemption pursuant to this paragraph will be made upon not less than 30 days nor more than 60 days notice, at the Redemption Price. If the Debentures are only partially redeemed by the Company pursuant to an Optional Redemption, the Debentures will be redeemed pro rata or by lot or by any other method utilized by the Trustee; provided that if, at the time of redemption, the Debentures are registered as a Global Debenture, the Depositary shall determine the principal amount of such Debentures held by each Debenture holder to be redeemed in accordance with its procedures. In the event of redemption of this Debenture in part only, a new Debenture or Debentures of this series for the unredeemed portion hereof will 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 of each series affected 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 60 67 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, or reduce any premium payable upon the redemption thereof, 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 affected thereby, 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 premium, if any, or interest on any of the Debentures of such series. 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 of and premium, if any, and interest on this Debenture at the time and place and at the rate and in the money herein prescribed. The Company shall have the right at any time during the term of the Debentures and from time to time to extend the interest payment period of such Debentures for up to 20 consecutive quarters (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 Security Register of the Company, upon surrender of this Debenture for registration of transfer at the office or agency of the Trustee in _________________ 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 and series will be issued to the designated transferee or transferees. No service charge will be made for any such transfer, but the 61 68 Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Debenture, the Company, the Trustee, any paying agent and the Security 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 Security Registrar) for the purpose of receiving payment of or on account of the principal hereof and premium, if any, and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Security 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. This Global Debenture is exchangeable for Debentures in definitive form only under certain limited circumstances set forth in the Indenture. Debentures of this series so issued are issuable only in registered form without coupons in denominations of $25 and any integral multiple thereof. 62 EX-4.5 4 EXHIBIT 4.5 1 EXHIBIT 4.5 [FORM OF AMENDED AND RESTATED TRUST AGREEMENT OF IBC CAPITAL FINANCE] WILMINGTON TRUST COMPANY, not in its individual capacity but solely as Trustee By Name: Norma Closs Title: Vice President WILLIAM R. KOHLS William R. Kohls not in his individual capacity but solely as Trustee IBC CAPITAL FINANCE AMENDED AND RESTATED TRUST AGREEMENT among INDEPENDENT BANK 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 December __, 1996 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I Defined Terms ....................................................................................2 Section 101. Definitions ........................................................................2 ARTICLE II Establishment of the Trust ......................................................................11 Section 201. Name ..............................................................................11 Section 202. Office of the Delaware Trustee; Principal Place of Business .......................11 Section 203. Initial Contribution of Trust Property; Organizational Expenses ...................11 Section 204. Issuance of the Preferred Securities ..............................................11 Section 205. Issuance of the Common Securities; Subscription and Purchase of Debentures ........12 Section 206. Declaration of Trust ..............................................................12 Section 207. Authorization to Enter into Certain Transactions ..................................12 Section 208. Assets of Trust ...................................................................16 Section 209. Title to Trust Property ...........................................................16 ARTICLE III Payment Account .................................................................................16 Section 301. Payment Account ...................................................................16 ARTICLE IV Distributions; Redemption .......................................................................16 Section 401. Distributions .....................................................................16 Section 402. Redemption ........................................................................17 Section 403. Subordination of Common Securities ................................................19 Section 404. Payment Procedures ................................................................20 Section 405. Tax Returns and Reports ...........................................................20 Section 406. Payment of Taxes, Duties, Etc. of the Trust .......................................20 Section 407. Payments under Indenture ..........................................................21 ARTICLE V Trust Securities Certificates ...................................................................21 Section 501. Initial Ownership .................................................................21 Section 502. The Trust Securities Certificates .................................................21 Section 503. Execution and Delivery of Trust Securities Certificates ...........................21 Section 504. Registration of Transfer and Exchange of Preferred Securities Certificates ........22 Section 505. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates ................22 Section 506. Persons Deemed Securityholders ....................................................23 Section 507. Access to List of Securityholders' Names and Addresses ............................23 Section 508. Maintenance of office or Agency ...................................................24
3 Section 509. Appointment of Paying Agent .......................................................24 Section 510. Ownership of Common Securities by Depositor .......................................24 Section 511. Book-Entry Preferred Securities Certificates; Common Securities Certificate .......25 Section 512. Notices to Clearing Agency ........................................................26 Section 513. Definitive Preferred Securities Certificates ......................................26 Section 514. Rights of Securityholders .........................................................26 ARTICLE VI Acts of Securityholders; Meetings; Voting ................................................27 Section 601. Limitations on Voting Rights ......................................................27 Section 602. Notice of Meetings ................................................................28 Section 603. Meetings of Preferred Securityholders .............................................28 Section 604. Voting Rights .....................................................................29 Section 605. Proxies, etc ......................................................................29 Section 606. Securityholder Action by Written Consent ..........................................29 Section 607. Record Date for Voting and Other Purposes .........................................29 Section 608. Acts of Securityholders ...........................................................30 Section 609. Inspection of Records .............................................................31 ARTICLE VII Representations and Warranties ..................................................................31 Section 701. Representations and Warranties of the Bank and the Property Trustee ...............31 Section 702. Representations and Warranties of the Delaware Bank and the Delaware Trustee ......32 Section 703. Representations and Warranties of Depositor .......................................33 ARTICLE VIII The Trustees ....................................................................................34 Section 801. Certain Duties and Responsibilities ...............................................34 Section 802. Certain Notices ...................................................................35 Section 803. Certain Rights of Property Trustee ................................................35 Section 804. Not Responsible for Recitals or Issuance of Securities ............................37 Section 805. May Hold Securities ...............................................................38 Section 806. Compensation; Indemnity; Fees .....................................................38 Section 807. Corporate Property Trustee Required; Eligibility of Trustees ......................38 Section 808. Conflicting Interests .............................................................39 Section 809. Co-Trustees and Separate Trustee ..................................................39 Section 810. Resignation and Removal; Appointment of Successor .................................40 Section 811. Acceptance of Appointment by Successor ............................................42 Section 812. Merger, Conversion, Consolidation or Succession to Business .......................42 Section 813. Preferential Collection of Claims Against Depositor or Trust ......................43 Section 814. Reports by Property Trustee .......................................................43 Section 815. Reports to the Property Trustee ...................................................43
iii 4 Section 816. Evidence of Compliance with Conditions Precedent ..................................44 Section 817. Number of Trustees ................................................................44 Section 818. Delegation of Power ...............................................................44 Section 819. Voting ............................................................................44 ARTICLE IX Termination, Liquidation and Merger .............................................................45 Section 901. Termination upon Expiration Date ..................................................45 Section 902. Early Termination .................................................................45 Section 903. Termination .......................................................................45 Section 904. Liquidation .......................................................................45 Section 905. Mergers, Consolidations, Amalgamations or Replacements of the Trust ...............47 ARTICLE X Miscellaneous Provisions ........................................................................48 Section 1001. Limitation of Rights of Securityholders ..........................................48 Section 1002. Amendment ........................................................................48 Section 1003. Separability .....................................................................49 Section 1004. Governing Law ....................................................................50 Section 1005. Payments Due on Non-Business Day .................................................50 Section 1006. Successors .......................................................................50 Section 1007. Headings .........................................................................50 Section 1008. Reports, Notices and Demands .....................................................50 Section 1009. Agreement Not to Petition ........................................................51 Section 1010. Trust Indenture Act; Conflict with Trust Indenture Act ...........................51 Section 1011. Acceptance of Terms of Trust Agreement, Guarantee and Indenture ..................52 Exhibit A Certificate of Trust Exhibit B Form of Certificate Depository Agreement Exhibit C Form of Common Securities Certificate Exhibit D Form of Expense Agreement Exhibit E Form of Preferred Securities Certificate
iv 5 CROSS-REFERENCE TABLE SECTION OF TRUST INDENTURE ACT SECTION OF OF 1939, AS AMENDED INDENTURE - ------------------- ---------- 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) ..................................................108 313(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, 108 315(c) ..................................................801(a) 315(d) ..................................................801, 803 315(e) ..................................................Not Applicable 316(a) ..................................................Not Applicable 316(a)(1)(A) ............................................Not Applicable 316(a)(1)(B) ............................................Not Applicable 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 v 6 AMENDED AND RESTATED TRUST AGREEMENT, dated as of November , 1996, among (i) Independent Bank Corporation, a Michigan corporation (including any successors or assigns, the "Depositor"), (ii) State Street Bank and Trust Company, a Massachusetts banking corporation duly organized and existing under the laws of the State 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) Charles C. VanLoan, an individual, and William R. Kohls, an individual, and James J. Twarozynski, an individual, each of whose address is c/o Independent Bank Corporation (each an "Administrative Trustee" and collectively the "Administrative Trustees") (the Property Trustee, the Delaware Trustee and the Administrative Trustees referred to collectively as the "Trustees") and (v) the several Holders, as hereinafter defined. W I T N E S S E T H: WHEREAS, the Depositor, the Delaware Trustee, and Charles C. Van Loan, William R. Kohls and James J. Twarozynsk, each as an Administrative Trustee, have heretofore duly declared and established a business trust pursuant to the Delaware Business Trust Act by the entering into of that certain Trust Agreement, dated as of November ___, 1996 (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 November ___, 1996, the form of which is attached as Exhibit A; and WHEREAS, the Depositor, the Delaware Trustee, the Property Trustee and the Prior Administrative Trustee desire to amend and restate the Original Trust Agreement in its entirety as set forth herein to provide for, among other things, (i) the issuance of the Common Securities by the Trust to the Depositor, (ii) the issuance and sale of the Preferred Securities by the Trust pursuant to the Underwriting Agreement, (iii) the acquisition by the Trust from the Depositor of all of the right, title and interest in the Debentures and (iv) the appointment of the Property Trustees; NOW THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, each party, for the benefit of the other parties and for the benefit of the Securityholders, hereby amends and restates the Original Trust Agreement in its entirety and agrees as follows: ARTICLE I DEFINED TERMS SECTION 101. DEFINITIONS. For all purposes of this Trust Agreement, except as otherwise expressly provided or unless the context otherwise requires: 7 (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (b) all other terms used herein that are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (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 Sums" has the meaning specified in section ____ of the Indenture. "Administrative Trustee" means each of William R. Kohls, Charles C. Van Loan, and James J. Twarozynski, 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" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Bank" has the meaning specified in the preamble to this Trust Agreement. "Bankruptcy Event" means, with respect to any Person: (a) the entry of a decree or order by a court having jurisdiction in the premises 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 Federal Bankruptcy Code 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 Federal Bankruptcy Code in respect of such Person, which shall continue undismissed for a period of 90 days 2 8 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 Federal Bankruptcy Code 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 Company to which authority to act on behalf of the Board of Directors has been delegated, and to be in full force and effect on the date of such certification, and delivered to the appropriate Trustee. "Book Entry Preferred Securities Certificates" means certificates representing Preferred Securities issued in global, fully registered form to the Clearing Agency as described in Section 511. "Business Day" means a day other than (a) a Saturday or Sunday, (b) a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed, or (c) a day on which the Property Trustee's Corporate Trust Office or the Corporate Trust Office of the Debenture Trustee is closed for business. "Certificate Depository Agreement" means the agreement among the Trust, the Depositor and The Depositary Trust Company, as the initial Clearing Agency, dated as of the Closing Date, relating to the Trust Securities Certificates, substantially in the form attached as Exhibit B, as the same may be amended and supplemented from time to time. "Certificate of Trust" means the certificate of trust filed with the Secretary of State of the State of Delaware with respect to the Trust, as amended or restated from time to time. "Clearing Agency" means an organization registered as a "clearing agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. The Depositary Trust Company will be the initial Clearing Agency. 3 9 "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. "Closing Date" means the date of execution and delivery of this Trust Agreement. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, as amended, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common 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 principal corporate trust office of the Property Trustee located at 2 International Place, 5th Floor, Boston, Massachusetts 02110. "Debenture Event of Default" means an "Event of Default" as defined in the Indenture. "Debenture Redemption Date" means, with respect to any Debentures to be redeemed under the Indenture, the date fixed for redemption under the Indenture. "Debenture Tax Event" means a "Tax Event" as defined in the Indenture. "Debenture Trustee" means State Street Bank and Trust Company, a Massachusetts banking corporation organized under the laws of the State of Massachusetts and any successor thereto, as trustee under the Indenture. "Debentures" means the $ aggregate principal amount of the Depositor's % Junior Subordinated Deferrable Interest Debentures, issued pursuant to the Indenture. "Definitive Preferred Securities Certificates" means either or both (as the context requires) of (a) Preferred Securities Certificates issued as Book-Entry Preferred Securities Certificates as provided in Section 511(a) and (b) Preferred Securities Certificates issued in certificated, fully registered form as provided in Section 513. "Delaware Bank" has the meaning specified in the preamble to this Trust Agreement. 4 10 "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. "Event of Default" means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) the occurrence of a Debenture Event of Default; or (b) default by the Trust in the payment of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days; or (c) default by the Trust in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or (d) default in the performance, or breach, in any material respect, of any covenant or warranty of the Trustees in this Trust Agreement (other than a covenant or warranty a default in the performance of which or the breach of which is dealt with in clause (b) or (c), above) and continuation of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the defaulting Trustee or Trustees by the Holders of at least 25% in aggregate liquidation preference of the Outstanding 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. 5 11 "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. "Extension Period" has the meaning specified in Section ____ of the Indenture. "Global Debenture" has the meaning specified in the Indenture. "Guarantee" means the 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 November __, 1996, between the Depositor and the Debenture Trustee, as trustee, as amended or supplemented from time to time. "Investment Company Event" means the receipt by the Trust of an Opinion of Counsel, rendered by a law firm having a recognized national tax and securities law practice, to the effect that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), the Trust is or will be considered an "investment company" that is required to be registered under the 1940 Act, which Change in 1940 Act Law becomes effective on or after the date of original issuance of the Preferred Securities under this Trust Agreement. "Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of trust, adverse ownership interest, hypothecation, assignment, security interestor 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 will 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. "Liquidation Amount" means the stated amount of $25 per Trust Security. 6 12 "Liquidation Date" means the date on which Debentures are to 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). "1940 Act" means the Investment Company Act of 1940, as amended. "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 a written opinion of counsel, who may be counsel for the Trust, the Property Trustee, the Delaware Trustee or the Depositor, but not an employee of any thereof, 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; 7 13 (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, 511 and 513; 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 the Depositor or any Affiliate of the Depositor. "Owner" means each Person who is the beneficial owner of a Book Entry Preferred Securities Certificate as reflected in the records of the Clearing Agency or, if a Clearing Agency Participant is not the Owner, then as reflected in the records of a Person maintaining an account with such Clearing Agency (directly or indirectly, in accordance with the rules of such clearing Agency). "Paying Agent" means any paying agent or co-paying agent appointed pursuant to Section 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 will 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. 8 14 "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, plus the related amount of the premium, if any, paid by the Depositor upon the concurrent redemption of a Like Amount of Debentures, allocated on a pro rata basis (based on Liquidation Amounts) among the Trust Securities. "Relevant Trustee" shall have the meaning specified in Section 810. "Securities Register" and "Securities Registrar" have the respective meanings specified in Section 504. "Security holder" 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. "Tax Event" means the receipt by the Trust of an opinion of Counsel, rendered by a law firm having a recognized national tax and securities practice, to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after the date of issuance of the Preferred Securities under this Trust Agreement, there is more than an insubstantial risk that (i) the Trust is, or will be within 90 days after the date of such opinion of Counsel, subject to United States federal income tax with respect to income received or accrued on the Debentures, (ii) interest payable by the Depositor on the Debentures is not, or within 90 days after the date of such Opinion of Counsel, will not be, deductible by the Depositor, in whole or in part, for United States federal income tax purposes or (iii) the Trust is, or will be within 90 days after the date of such opinion of Counsel, subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges. 9 15 "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 in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trust Property" means (a) the Debentures, (b) 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 , 1996, among the Trust, the Depositor and the Underwriters named therein. ARTICLE II ESTABLISHMENT OF THE TRUST SECTION 201. NAME. The Trust created and continued hereby shall be known as "IBC Capital," as such name may be modified from time to time by the Administrative Trustees following written notice to the Holders of Trust Securities and the other Trustees, in which name the Trustees may engage in the transactions contemplated hereby, make and execute contracts and other instruments on behalf of the Trust and sue and be sued. SECTION 202. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF BUSINESS. 10 16 The address of the Delaware Trustee in the State of Delaware is c/o Wilmington Trust Company, 1100 North Market Street, Wilmington, Delaware 19890, Attention: Corporate Trust Administration, or such other address in the State of Delaware as the Delaware Trustee may designate by written notice to the Securityholders and the Depositor. The principal executive office of the Trust is c/o Independent Bank Corporation, 230 West Main Street, Ionia, Michigan 48846. SECTION 203. INITIAL CONTRIBUTION OF TRUST PROPERTY; ORGANIZATIONAL EXPENSES. The Trustees acknowledge receipt in trust from the Depositor in connection with the original Trust Agreement of the sum of $10, which constituted the initial Trust Property. The Depositor shall pay organizational expenses of the Trust as they arise or shall, upon request of any Trustee, promptly reimburse such Trustee for any such expenses paid by such Trustee. The Depositor shall make no claim upon the Trust Property for the payment of such expenses. SECTION 204. ISSUANCE OF THE PREFERRED SECURITIES. On December _____, 1996 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 nominee of the initial Clearing Agency, in an aggregate amount of Preferred Securities having an aggregate Liquidation Amount of $ against receipt of the aggregate purchase price of such Preferred Securities of $ , 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 Preferred Securities Certificates, registered in the name of the nominee of the initial Clearing Agency, in an aggregate amount of up to ___________ Preferred Securities having an aggregate Liquidation Amount of up to $_____________ against receipt of the aggregate purchase price of such Preferred Securities of $______________, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. SECTION 205. ISSUANCE OF THE COMMON SECURITIES; SUBSCRIPTION AND PURCHASE OF DEBENTURES. Contemporaneously with the execution and delivery of this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 502 and deliver to the Depositor Common Securities Certificates, registered in the name of the Depositor, in an aggregate amount of Common Securities having an aggregate Liquidation Amount of $ 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 $ , 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 $ . 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 to the Depositor Common Securities Certificates, registered in the name of the nominee of the initial Clearing Agency, in an aggregate amount of Common Securities having an aggregate Liquidation Amount of up to $____________ 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 Trust and having an aggregate principal amount of up to $_________, and, in satisfaction of the purchase price of such Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the Depositor the amount received from one of the Administrative Trustees pursuant to the last sentence of Section 204 (being the sum of the amounts delivered to the Property Trustee pursuant to (i) the second sentence of Section 204 and (ii) the third sentence of this Section 205). SECTION 206. DECLARATION OF TRUST. 11 17 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 will 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 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 the Certificate Depository 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 National Market or such securities exchange or exchanges as shall be determined by the Depositor and the registration of the Preferred Securities under the Securities Exchange Act of 1934, as amended, and the preparation and filing of all periodic and other reports and other documents pursuant to the foregoing; 12 18 (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 Securities and the Debentures to the Securityholders in accordance with this Trust Agreement; 13 19 (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 14 20 than actions which must be taken by or on behalf of the Trust, and advise the Trustees of actions they must take on behalf of the Trust, and prepare for execution and filing any documents to be executed and filed by the Trust or on behalf of the Trust, as the Depositor deems necessary or advisable in order to comply with the applicable laws of any such States; (iii) the preparation for filing by the Trust and execution on behalf of the Trust of an application to the Nasdaq National Market or a national stock exchange or other organizations for listing upon notice of issuance of any 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 will not be deemed to be an "investment Company" required to be registered under the 1940 Act, will 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 will 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. 15 21 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 will accumulate whether or not there are funds of the Trust available for the payment of Distributions. Distributions shall accumulate from , 1996, and, except during any Extension 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 __________, 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) except that, if such Business Day is in the next succeeding calendar year, payment of such Distribution shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on such date (each date on which distributions are payable in accordance with this Section 401(a) a "Distribution Date"). (b) The Trust Securities represent undivided beneficial interests in the Trust Property, and, as a practical matter, the Distributions on the Trust Securities shall be payable at a rate of % per annum of the Liquidation Amount of the Trust Securities. The amount of Distributions payable for any full period shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of Distributions for any partial period shall be computed on the basis of the number of days elapsed in a 360-day year of twelve 30 day months. During any Extension Period with respect to the Debentures, Distributions on the Preferred Securities will be deferred for 16 22 a period equal to the Extension 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 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 date, which shall be one Business Day prior to such Distribution Date; provided, however, that in the event that the Preferred Securities do not remain in book-entry-only form, the relevant record date shall be the date 15 days prior to the relevant Distribution Date. SECTION 402. REDEMPTION. (a) on each Debenture Redemption Date and on the stated maturity of the Debentures, the Trust will be required to redeem a Like Amount of Trust Securities at the Redemption Price. (b) Notice of redemption shall be given by the Property Trustee by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date to each Holder of Trust Securities to be redeemed, at such Holder's address appearing in the Security Register. 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 will become due and payable upon each such Trust Security to be redeemed and that distributions thereon will cease to accumulate on and after said date. (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 17 23 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 will, so long as the Preferred Securities are in book-entry-only form, deposit with the Clearing Agency for the Preferred Securities funds sufficient to pay the applicable Redemption Price and will give such Clearing Agency irrevocable instructions and authority to pay the Redemption Price to the holders thereof. If the Preferred Securities are no longer in book-entry-only form, the Property Trustee, subject to Section 402(c), will deposit with the Paying Agent funds sufficient to pay the applicable Redemption Price and will give the Paying Agent irrevocable instructions and authority to pay the Redemption Price to the Holders thereof upon surrender of' their Preferred Securities Certificates. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date for any Trust Securities called for redemption shall be payable to the Holders of such Trust Securities as they appear on the Register for the Trust Securities on the relevant record dates for the related Distribution Dates. If notice of redemption shall have been given and funds deposited as required, then upon the date of such deposit, all rights of Securityholders holding Trust Securities so called for redemption will cease, except the right of such Securityholders to receive the Redemption Price and any Distribution payable on or prior to the Redemption Date, but without interest, and such Securities will cease to be Outstanding. In the event that any date on which any Redemption Price is payable is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately precedig Business Day, in each case, with the same force and effect as if made on such date. In the event that payment of the Redemption Price in respect of any Trust Securities called for redemption is improperly withheld or refused and not paid either by the Trust or by the Depositor pursuant to the Guarantee, Distributions on such Trust Securities will continue to 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 will 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 one Business Day prior to the relevant Redemption Date; provided, however, that in the event that the Preferred Securities do not remain in book-entry-only form, the relevant record date shall be the date fifteen days prior to the relevant Redemption Date. (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 18 24 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 Security Registrar in writing of the Preferred Securities selected for redemption and, in the case of any Preferred Securities selected for partial redemption, the Liquidation Amount thereof to be redeemed. For all purposes of this Trust Agreement, unless the context otherwise requires, all provisions relating to the redemption of Preferred Securities shall relate, in the case of any Preferred Securities redeemed or to be redeemed only in part, to the portion of the Liquidation Amount of Preferred Securities 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 will be deemed to have waived any right to act with respect to any such Event of Default under this Trust Agreement until the effect of all such Events of Default with respect to the Preferred Securities 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 will have the right to direct the Property Trustee to act on their behalf. SECTION 404. PAYMENT PROCEDURES. 19 25 Payments of Distributions (including Additional Amounts, if applicable) in respect of the Preferred Securities shall be made by check mailed to the address of the Person entitled thereto as such address shall appear on the Securities Register or, if the Preferred securities are held by a Clearing Agency, such Distributions shall be made to the Clearing Agency in immediately available funds, which shall credit the relevant Persons' accounts at such Clearing Agency on the applicable distribution dates. Payments in respect of the Common Securities shall be made in such manner as shall be mutually agreed 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 THE TRUST. Upon receipt under the Debentures of Additional Sums (as defined in the Indenture), the Property Trustee, at the direction of an Administrative Trustee or the Depositor, shall promptly pay any taxes, duties or governmental charges of whatsoever nature (other than withholding taxes) imposed on the Trust by the United States or any other taxing authority. SECTION 407. PAYMENTS UNDER INDENTURE. Any amount payable hereunder to any 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. 20 26 Upon the creation of the Trust and the contribution by the Depositor pursuant to Section 203 and until the issuance of the Trust Securities, and at any time during which no Trust Securities are outstanding, the Depositor shall be the sole beneficial owner of the Trust. SECTION 502. THE TRUST SECURITIES CERTIFICATES. The 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 signature of at least one Administrative Trustee. Trust Securities Certificates bearing the manual signatures of individuals who were, at the time when such signatures shall have been affixed, authorized to sign on behalf of the Trust, shall be validly issued and entitled to the benefits of this Trust Agreement, notwithstanding that such individuals or any of them shall have ceased to be so authorized prior to the delivery of such Trust Securities Certificates or did not hold such offices at the date of delivery of such Trust Securities Certificates. A transferee of a Trust Securities Certificate shall become a Securityholder, and shall be entitled to the rights and subject to the obligations of a Securityholder hereunder, upon due registration of such Trust Securities Certificate in such transferee's name pursuant to Sections 504, 511 and 513. SECTION 503. EXECUTION AND DELIVERY OF TRUST SECURITIES CERTIFICATES. On the Closing Date, the Administrative Trustees shall cause Trust Securities Certificates, in an aggregate Liquidation Amount as provided in Sections 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 President, any Vice President, the Treasurer or any Assistant Treasurer without further corporate action by the Depositor, in authorized denominations. SECTION 504. REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED SECURITIES CERTIFICATES. The Depositor shall keep or cause to be kept, at the office or agency maintained pursuant to Section 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. 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 21 27 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. 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. 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, the Administrative Trustees or the Securities Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Trust Securities Certificate issued pursuant to this Section shall constitute conclusive evidence of an undivided beneficial interest in the 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. 22 28 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 The City of New York, 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 principal corporate trust office of the Property Trustee, [insert address], as the principal corporate trust office for such purposes. The Administrative Trustees shall give prompt written notice to the Depositor and to the Securityholders of any change in the location of the Securities Register or any such office or agency. SECTION 509. APPOINTMENT OF PAYING AGENT. The Paying Agent shall make distributions to Securityholders from the Payment Account and shall report the amounts of such distributions to the Property Trustee and the Administrative Trustees. Any Paying Agent shall have the revocable power to withdraw funds from the Payment Account for the purpose of making the Distributions referred to above. The Administrative Trustees may revoke such power and remove the Paying Agent if such Trustees determine in their sole 23 29 discretion that the Paying Agent shall have failed to perform its obligations under this Trust Agreement in any material respect. The Paying Agent shall initially be the Property Trustee, and any co-paying agent chosen by the Property Trustee, and acceptable to the Administrative Trustees and the Depositor. Any Person acting as Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Administrative Trustees, the Property Trustee and the Depositor. In the event that the Property Trustee shall no longer be the Paying Agent or a successor Paying Agent shall resign or its authority to act be revoked, the Administrative Trustees shall appoint a successor that is acceptable to the Property Trustee and the Depositor to act as Paying Agent (which shall be a bank or trust company). The Administrative Trustees shall cause such successor Paying Agent or any additional Paying Agent appointed by the Administrative Trustees to execute and deliver to the Trustees an instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Trustees that as Paying Agent, such successor Paying Agent or additional Paying Agent will hold all sums, if any, held by it for payment to the Securityholders in trust for the benefit of the Securityholders entitled thereto until such sums shall be paid to such Securityholders. The Paying Agent shall return all unclaimed funds to the Property Trustee and upon removal of a Paying Agent such Paying Agent shall also return all funds in its possession to the Property Trustee The provisions of Sections 801, 803 and 806 shall apply to the Property Trustee also in its role as Paying Agent, for so long as the Property Trustee shall act as Paying Agent and, to the extent applicable, to any other paying agent appointed hereunder. Any reference in this Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise. SECTION 510. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR. 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 10.01 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. BOOK-ENTRY PREFERRED SECURITIES CERTIFICATES; COMMON SECURITIES CERTIFICATE. (a) The Preferred Securities Certificates, upon original issuance, will be issued in the form of a typewritten Preferred Securities Certificate or Certificates representing Book-Entry Preferred Securities Certificates, to be delivered to or held on behalf of the Depositary Trust Company, the initial Clearing Agency, by, or on behalf of, the Trust. Such Book-Entry Preferred Securities Certificate or Certificates shall initially be registered on the Securities Register in the name of Cede & Co., the nominee of the initial Clearing Agency, and no beneficial owner will receive a Definitive Preferred Securities Certificate representing such beneficial owner's interest in such Preferred Securities, except as provided in section 513, unless and until Definitive Preferred Securities Certificates have been issued to beneficial owners pursuant to Section 513: 24 30 (i) the provisions of this Section 511(a) shall be in full force and effect; (ii) the Securities Registrar, the Paying Agent and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Trust Agreement relating to the Book Entry Preferred Securities Certificates (including the payment of the Liquidation Amount of and Distributions on the Book-Entry Preferred Securities) as the sole Holder of Book-Entry Preferred Securities and shall have no obligations to the Owners thereof; (iii) to the extent that the provisions of this Section 511 conflict with any other provisions of this Trust Agreement, the provisions of this Section 511 shall control; and (iv) the rights of the Owners of the Book-Entry Preferred Securities Certificates shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Owners and the Clearing Agency and/or the Clearing Agency Participants. Pursuant to the Certificate Depository Agreement, unless and until Definitive Preferred Securities Certificates are issued pursuant to Section 513, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit payments on the Preferred Securities to such Clearing Agency Participants. Any Clearing Agency designated pursuant hereto will not be deemed an agent of the Trustees for any purpose. (b) A single Common Securities Certificate representing the Common Securities shall be issued to the Depositor in the form of a definitive Common Securities Certificate. SECTION 512. NOTICES TO CLEARING AGENCY. To the extent that a notice or other communication to the owners is required under this Trust Agreement, unless and until Definitive Preferred Securities Certificates shall have been issued to Owners pursuant to Section 513, the Trustees shall give all such notices and communications specified herein to be given to Owners to the Clearing Agency, and shall have no obligations to the Owners. SECTION 513. DEFINITIVE PREFERRED SECURITIES CERTIFICATES. If (a) the Depositor advises the Trustees in writing that the Clearing Agency is no longer willing or able to properly discharge its responsibilities with respect to the Preferred Securities Certificates, and the Depositor is unable to locate a qualified successor, (b) the Depositor at its option advises the Trustees in writing that it elects to terminate the book-entry system through the Clearing Agency, or (c) after the occurrence of a Debenture Event of Default, owners of Preferred Securities Certificates representing beneficial interests aggregating at least a majority of the Liquidation Amount advise the Property Trustee in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interests of the owners of Preferred Securities Certificates, then the Property Trustee shall notify the Clearing Agency, and the Clearing Agency shall notify all Owners of Preferred Securities Certificates, of the occurrence of any such event and of the availability 25 31 of the Definitive Preferred Securities Certificates to owners of such class or classes, as applicable, requesting the same. Upon surrender to the Property Trustee of the typewritten Preferred Securities certificate or Certificates representing the Book-Entry Preferred Securities Certificates by the Clearing Agency, accompanied by registration instructions, the Administrative Trustees, or any one of them, shall execute the Definitive Preferred Securities Certificates in accordance with the instructions of the Clearing Agency. Neither the Securities Registrar nor the Trustees shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Preferred Securities Certificates, the Trustees shall recognize the Holders of the Definitive Preferred Securities Certificates as Securityholders. The Definitive Preferred Securities Certificates shall be 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. 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 will 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 26 32 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, 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 Six 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 will 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 will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of the Holders of at least a majority in 27 33 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. 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 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. 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. 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 28 34 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. Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Trust Agreement to be given, made or taken by Securityholders or Owners may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders or owners in person or by an agent duly appointed in writing; and, except as otherwise expressly provided herein, such action shall become effective when such instrument or instruments are delivered to an Administrative Trustee. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Securityholders or Owners signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Trust Agreement and (subject to Section 801) conclusive in favor of the Trustees, if made in the manner provided in this Section. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other 29 35 officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which any Trustee receiving the same deems sufficient. The ownership of Preferred Securities shall be proved by the Securities Register. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Securityholder of any Trust Security shall bind every future Securityholder of the same Trust Security and the Securityholder of every Trust Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustees or the Trust in reliance thereon, whether or not notation of such action is made upon such Trust Security. Without limiting the foregoing, a Securityholder entitled hereunder to take any action hereunder with regard to any particular Trust Security may do so with regard to all or any part of the Liquidation Amount of such Trust Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such liquidation amount. 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 by Securityholders during normal business hours for any purpose reasonably related to such Securityholder's interest as a Securityholder. ARTICLE VII REPRESENTATIONS AND WARRANTIES SECTION 701. REPRESENTATIONS AND WARRANTIES OF THE BANK AND THE PROPERTY TRUSTEE. The Bank and the Property Trustee, each severally on behalf of and as to itself, as of the date hereof, and each Successor Property Trustee at the time of the Successor Property Trustee's acceptance of its appointment as Property Trustee hereunder (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: 30 36 (a) the Bank is a Massachusetts banking corporation duly organized, validly existing and in good standing under the laws of the State 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 will 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 State 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 State 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 THE DELAWARE BANK AND THE DELAWARE TRUSTEE. 31 37 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 will 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 32 38 in the aggregate, would materially and adversely affect the Trust or would question the right, power and authority of the Delaware Trustee to enter into or perform its obligations as one of the Trustees under this Trust Agreement. SECTION 703. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR. The Depositor hereby represents and warrants for the benefit of the Securityholders that: (a) the Trust Securities Certificates issued on the Closing Date on behalf of the Trust have been duly authorized and will have been, duly and validly executed, issued and delivered by the Administrative Trustees pursuant to the terms and provisions of, and in accordance with the requirements of, this Trust Agreement and the Securityholders will be, as of such date, entitled to the benefits of this Trust Agreement; and (b) there are no taxes, fees or other governmental charges payable by the Trust (or the Trustees on behalf of the Trust) under the laws of the State of Delaware or any political subdivision thereof in connection with the execution, delivery and performance by the Bank, the Property Trustee or the Delaware Trustee, as the case may be, of this Trust Agreement. 33 39 ARTICLE VIII THE 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. To the extent that, at law or in equity, the Delaware Trustee an Administrative Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to the Securityholders, the Delaware Trustee 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 the Administrative Trustees otherwise existing at law or in equity, are agreed by the Depositor and the Securityholders to replace such other duties and liabilities of the Administrative Trustees. (b) All payments made by the Property Trustee or a Paying Agent in respect of the Trust Securities shall be made only from the revenue and proceeds from the Trust Property and only to the extent that there shall be sufficient revenue or proceeds from the Trust Property to enable the Property Trustee or a Paying Agent to make payments in accordance with the terms hereof. Each Securityholder, by its acceptance of a Trust Security, agrees that it will look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to it as herein provided and that the Trustees are not personally liable to it for any amount distributable in respect of any Trust Security or for any other liability in respect of any Trust Security. This Section 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 34 40 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 15 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 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 Extension 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 35 41 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 ten Business Days after it has delivered such notice, or such reasonably shorter period of time set forth in such notice (which to the extent practicable shall not be less than two Business Days), it may, but shall be under no duty to, take or refrain from taking such action not inconsistent with this Trust Agreement as it shall deem advisable and in the best interests of the Securityholders, in which event the Property Trustee shall have no liability except for its own bad faith, negligence or willful misconduct; (c) any direction or act of the Depositor or the Administrative Trustees contemplated by this Trust Agreement shall be sufficiently evidenced by an Officers' Certificate; (d) whenever in the administration of this Trust Agreement, the Property Trustee shall deem it desirable that a matter be established before undertaking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an 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 or 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; 36 42 (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. 37 43 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 for (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 any 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, 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 38 44 Trust Securities shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. (b) There shall at all times be one or more Administrative Trustees hereunder with respect to the Trust Securities. Each Administrative Trustee shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more persons authorized to bind that entity. (c) There shall at all times be a Delaware Trustee with respect to the Trust Securities. The Delaware Trustee shall either be (i) a natural person who is at least 21 years of age and a resident of the State of Delaware or (ii) a legal entity with its principal place of business in the State of Delaware and that otherwise meets the requirements of applicable Delaware law that shall act through one or more persons authorized to bind such entity. SECTION 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. 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. If the Depositor does not join in such appointment within 15 days after the receipt by it of a request so to do, or in case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make such appointment. Any co-trustee or separate trustee appointed pursuant to this Section shall either be (i) a natural person who is at least 21 years of age and a resident of the United States or (ii) a legal entity with its principal place of business in the United States that shall act through one or more persons authorized to bind such entity. Should any written instrument from the Depositor be required by any co-trustee or separate trustee so appointed for more fully confirming to such co-trustee or separate trustee such property, 39 45 title, right, or power, any and all such instruments shall, on request, be executed, acknowledged, and delivered by the Depositor. Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms, namely: (a) The Trust Securities shall be executed and delivered and all rights, powers, duties and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Trustees specified hereunder, shall be exercised, solely by such Trustees and not by such co-trustee or separate trustee. (b) The rights, powers, duties and obligations hereby conferred or imposed upon the Property Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed by the Property Trustee or by the Property Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Property Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by such co-trustee or separate trustee. (c) The Property Trustee at any time, by an instrument in writing executed by it, with the written concurrence of the Depositor, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section, and, in case a Debenture Event of Default has occurred and is continuing, the Property Trustee shall have power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Depositor. Upon the written request of the Property Trustee, the Depositor shall join with the Property Trustee in the execution, delivery and performance of all instruments and agreements 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. (d) No co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Property Trustee or any other trustee hereunder. (e) The Property Trustee shall not be liable by reason of any act of a co-trustee or separate trustee. (f) Any Act of Holders delivered to the Property Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee. SECTION 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. 40 46 No resignation or removal of any Trustee (the "Relevant Trustee") and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 811. 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 Company, any court of competent jurisdiction for the appointment of a successor Relevant Trustee with respect to the Trust Securities. 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. 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 Securitie on behalf of himself and all others similarly situated may petition a court of competent jurisdiction for the appointment Trustee with respect to the Trust Securities. 41 47 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. 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. 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. 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. 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. 42 48 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, 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 ______________, 199___, the Property Trustee shall transmit to all Securityholders in accordance with Section 1008, and to the Depositor, a brief report dated as of such December 31 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 each national securities exchange or other organization upon which the Trust Securities are listed, with the Commission and with the Depositor. SECTION 815. REPORTS TO THE PROPERTY TRUSTEE. 43 49 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 (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 44 50 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, [2051] (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) an order for dissolution of the Trust shall have been entered by a court of competent jurisdiction. SECTION 903. TERMINATION The respective obligations and responsibilities of the Trustees and the Trust created and continued hereby shall terminate upon the latest to occur of the following: (a) the distribution by the Property Trustee to Securityholders upon the liquidation of the Trust pursuant to Section 904, or upon the redemption of all of the Trust Securities pursuant to Section 402, of all amounts required to be distributed hereunder upon the final payment of the Trust Securities; (b) the payment of any expenses owed by the Trust; and (c) the discharge of all administrative duties of the Administrative 45 51 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 cancelation by the Administrative Trustee under the 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: (i) state the Liquidation Date; (ii) state that from and after the Liquidation Date, the Trust Securities will no longer be deemed to be Outstanding and any Trust Securities Certificates not surrendered for exchange will be deemed to represent a Like Amount of 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 will no longer be deemed to be outstanding, (ii) certificates (or, at the election of the Depositor a Global Debenture, subject to the provisions of the Indenture) representing a Like Amount of Debentures will be issued to holders of Trust Securities Certificates upon surrender of such certificates to the Administrative Trustees or their agent for exchange, (iii) the Depositor shall use its reasonable efforts to have the Debentures listed on The Nasdaq 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 will be deemed to represent a Like Amount of Debentures, accruing interest at the rate provided for in the Debentures from the last Distribution Date on which a Distribution was made on such Trust Securities Certificates until such certificates are so surrendered (and until such certificates are so surrendered, no payments of interest 46 52 or principal will be made to holders of Trust Securities Certificates with respect to such Debentures) and (v) all rights of Securityholders holding Trust Securities will cease, except the right of such Securityholders to receive Debentures upon surrender of Trust Securities Certificates. (d) In the event that, notwithstanding the other provisions of this Section 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 will be entitled to receive out of the assets of the Trust available for distribution to Securityholders, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, an amount equal to the Liquidation Amount per Trust Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). If, 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 will 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 THE TRUST. The Trust may not merge with or into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other Person, except pursuant to this Section 905. At the request of the Depositor, with the consent of the Administrative Trustees and without the consent of the holders of the 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 will 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 cause the Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization, (v) such merger, consolidation, amalgamation, 47 53 replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any Successor Securities) in any material respect, (vi) prior to suh 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 will be required to register as an investment Company under the 1940 Act and (vii) the Depositor owns all of the Common Securities of such successor entity and guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not, except with the consent of holders of 100% in Liquidation Amount of the 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. 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 will be classified for United States federal income tax purposes as a grantor trust at all times that any Trust Securities are outstanding or to ensure that the Trust will not be required to register as an "Investment Company" under the 1940 Act; provided, however, that in the case of clause (ii), such action shall not adversely affect in any material respect the interests of 48 54 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 will not affect the Trust's status as a grantor trust for United States federal income tax purposes or the Trust's exemption from status of an "investment company" under the 1940 Act. (c) In addition to and notwithstanding any other provision in this Trust Agreement, without the consent of each affected Securityholder (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 1940 Act or to fail or cease to be classified as a grantor trust for United States federal income tax purposes. (e) Notwithstanding anything in this Trust Agreement to the contrary, without the consent of the Depositor, this Trust Agreement may not be amended in a manner which imposes any additional obligation on the Depositor. (f) In the event that any amendment to this Trust Agreement is made, the Administrative Trustees shall promptly provide to the Depositor a copy of such amendment. (g) Neither the Property Trustee nor the Delaware Trustee shall be required to enter into any amendment to this Trust Agreement which affects its own rights, duties or immunities under this Trust Agreement. The Property Trustee shall be entitled to receive an Opinion of Counsel and an Officers' Certificate stating that any amendment to this Trust Agreement is in compliance with this Trust Agreement. SECTION 1003. SEPARABILITY. 49 55 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 (except as otherwise provided in Sections 401(a) and 402(d)), 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 Ten of the Indenture and pursuant to which the assignee agrees in writing to perform the Depositor's obligations hereunder, the Depositor shall not assign its obligations hereunder. SECTION 1007. HEADINGS. The Article and Section headings are for convenience only and shall not affect the construction of this Trust Agreement. SECTION 1008. REPORTS, NOTICES AND DEMANDS. Any report, notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon any Securityholder or the Depositor may be given or served in writing by deposit thereof, first-class postage prepaid, in the United States mail, hand delivery or facsimile transmission, in each case, addressed, (a) in the case of a Preferred Securityholder, to such Preferred Securityholder as such Securityholder's name and address may appear on the Securities Register; and (b) in the case of the Common Securityholder or the Depositor, to Independent Bank Corporation, 230 West Main Street, Ionia, Michigan 48846, Attention: Treasurer, facsimile no.: (616) 527-5634. Any notice to Preferred Securityholders shall 50 56 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. Any notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon the Trust, the Property Trustee or the Administrative Trustees shall be given in writing addressed (until another address is published by the Trust) as follows: (a) with respect to the Property Trustee to State Street Bank and Trust Company, ____________________, Attention: Corporate Trust Trustee Administration; (b) with respect to the Delaware Trustee, to Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Trustee Administration; and (c) with respect to the Administrative Trustees, to them at the address above for notices to the Depositor, marked "Attention: Administrative Trustees of IBC Capital." Such notice, demand or other communication to or upon the Trust or the Property Trustee shall be deemed to have been sufficiently given or made only upon actual receipt of the writing by the Trust or the Property Trustee. SECTION 1009. AGREEMENT NOT TO PETITION. Each of the Trustees and the Depositor agree for the benefit of the Securityholders that, until at least one year and one day after the Trust has been terminated in accordance with Article IX, they shall not file, or join in the filing of, a petition against the Trust under any bankruptcy, insolvency, reorganization or other similar law (including, without limitation, the United States Bankruptcy Code) (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 51 57 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 Securities as equity securities representing undivided beneficial interests in the assets of the Trust. 52 58 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. INDEPENDENT BANK CORPORATION By:_________________________________ Name: Title: STATE STREET BANK AND TRUST COMPANY as Property Trustee By:_________________________________ Name: Title: WILMINGTON TRUST COMPANY as Delaware Trustee By:_________________________________ Name: Title: 53 59 __ ________________________________________ As Administrative Trustee __ ________________________________________ As Administrative Trustee __ ________________________________________ As Administrative Trustee 54 60 EXHIBIT A CERTIFICATE OF TRUST OF IBC CAPITAL FINANCE This Certificate of Trust of IBC CAPITAL FINANCE (the "Trust"), dated November ___, 1996, is being duly executed and filed by Wilmington Trust Company, a Delaware banking corporation, Charles C. Van Loan, William R. Kohls, and James J. Twarozynski, 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 IBC Capital Finance. 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, Attn: Corporate Trust Administration. 3. EFFECTIVE DATE. This Certificate of Trust shall be effective on November , 1996. IN WITNESS WHEREOF, the undersigned, being the sole trustees of the Trust, has executed this Certificate of Trust as of the date first above written. WILMINGTON TRUST COMPANY, as trustee By:_________________________________ Name: Title: ____________________________________ CHARLES C. VAN LOAN, as Trustee ____________________________________ WILLIAM R. KOHLS, as Trustee ____________________________________ JAMES J. TWAROZYNSKI, as Trustee A-1 61 EXHIBIT B __________ ____, 1996 The Depository Trust Company, 55 Water Street, 49th Floor, New York, New York 10041-0099. Attention:___________________ General Counsel's Office Re: IBC Capital Finance Cumulative Trust Preferred Securities Ladies and Gentlemen: The purpose of this letter is to set forth certain matters relating to the issuance and deposit with The Depository Trust Company ("DEPOSITORY TRUST COMPANY") of IBC Capital Finance Preferred Securities (the "Preferred Securities"), of IBC Capital Finance, a Delaware business trust (the "Issuer"),created pursuant to a Trust Agreement between Independent Bank Corporation, a Michigan corporation ("IBC"), State Street Bank and Trust Company, as Property Trustee, Wilmington Trust Company, as Delaware Trustee and the Administrative Trustees named therein. The payment of distributions on the Preferred Securities and payments due upon liquidation of Issuer or redemption of the Preferred Securities, to the extent the Issuer has funds available for the payment thereof, are guaranteed by IBC to the extent set forth in a Guarantee Agreement dated November _, 1996 by IBC with respect to the Preferred Securities. IBC and the Issuer propose to sell the Preferred Securities to certain Underwriters (the "Underwriters") pursuant to an Underwriting Agreement dated November _, 1996 by and among the Underwriters, the Issuer and IBC, and the Underwriters wish to take delivery of the Preferred Securities through DEPOSITORY TRUST COMPANY. State Street Bank and Trust Company is acting as transfer agent and registrar with respect to the Preferred Securities (the "Transfer Agent and Registrar"). To induce DEPOSITORY TRUST COMPANY to accept the Preferred Securities as eligible for deposit at DEPOSITORY B-1 62 TRUST COMPANY, and to act in accordance with DEPOSITORY TRUST COMPANY's rules with respect to the Preferred Securities, the Issuer, the Transfer Agent and Registrar and DEPOSITORY TRUST COMPANY agree among each other as follows: 1. Prior to the closing of the sale of the Preferred Securities to the Underwriters, which is expected to occur on or about November _, 1996, there shall be deposited with DEPOSITORY TRUST COMPANY one or more global certificates (individually and collectively, the "Global Certificate") registered in the name of DEPOSITORY TRUST COMPANY's Preferred Securities nominee, Cede & Co., representing an aggregate of Preferred Securities and bearing the following legend: Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DEPOSITORY TRUST COMPANY"), to Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DEPOSITORY TRUST COMPANY (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. 2. The Amended and Restated Trust Agreement of the Issuer provides for the voting by holders of the Preferred Securities under certain limited circumstances. The Issuer shall establish a record date for such purposes and shall, to the extent possible, give DEPOSITORY TRUST COMPANY notice of such record date not less than 15 calendar days in advance of such record date. 3. In the event of a stock split, conversion, recapitalization, reorganization or any other similar transaction resulting in the cancellation of all or any part of the Preferred Securities outstanding, the Issuer or the Transfer Agent and Registrar shall send DEPOSITORY TRUST COMPANY a notice of such event at least 5 business days prior to the effective date of such event. 4. In the event of distribution on, or an offering or issuance of rights with respect to, the Preferred Securities outstanding, the Issuer or the Transfer Agent and Registrar shall send DEPOSITORY TRUST COMPANY a notice specifying: (a) the amount of and conditions, if any, applicable to the payment of any such distribution or any such offering or issuance of rights; (b) any applicable expiration or deadline date, or any date by which any action on the part of the holders of Preferred Securities is required; and (c) the date any required notice is to be mailed by or on behalf of the Issuer to holders of Preferred Securities or published by or on behalf of the Issuer (whether by mail or publication, the "Publication Date"). Such notice shall be sent to DEPOSITORY TRUST COMPANY by a secure means (e.g., legible telecopy, registered or certified mail, overnight delivery) in a timely manner designed to assure that such notice is in DEPOSITORY TRUST COMPANY's possession no later than t ' he close of business on the business day before the Publication Date. The B-2 63 Issuer or the Transfer Agent and Registrar will forward such notice either in a separate secure transmission for each CUSIP number or in a secure transmission of multiple CUSIP numbers (if applicable) that includes a manifest or list of each CUSIP number submitted in that transmission. (The party sending such notice shall have a method to verify subsequently the use of such means and the timeliness of such notice.) The Publication Date shall be not less than 30 calendar days nor more than 60 calendar days prior to the payment of any such distribution or any such offering or issuance of rights with respect to the Preferred Securities. After establishing the amount of payment to be made on the Preferred Securities, the Issuer or the Transfer Agent and Registrar will notify DEPOSITORY TRUST COMPANY's Dividend Department of such payment 5 business days prior to payment date. Notices to DEPOSITORY TRUST COMPANY's Dividend Department by telecopy shall be sent to (212) 09-1723. Such notices by mail or by any other means shall be sent to: Manager, Announcements Dividend Department The Depository Trust Company 7 Hanover Square, 23rd Floor New York, New York 10004-2695 The Issuer or the Transfer Agent and Registrar shall confirm DEPOSITORY TRUST COMPANY's receipt of such telecopy by telephoning the Dividend Department at (212) 709- 1270. 5. In the event of a redemption by the Issuer of the Preferred Securities, notice specifying the terms of the redemption and the Publication Date of such notice shall be sent by the Issuer or the Transfer Agent and Registrar to DEPOSITORY TRUST COMPANY not less than 30 calendar days prior to such event by a secure means in the manner set forth in paragraph 4. Such redemption notice shall be sent to DEPOSITORY TRUST COMPANY's Call Notification Department at (516) 227-4164 or (516) 227-4190, and receipt of such notice shall be confirmed by telephoning (516) 227-4070. Notice by mail or by any other means shall be sent to: Call Notification Department The Depository Trust Company 711 Stewart Avenue Garden City, New York 11530-4719 6. In the event of any invitation to tender the Preferred Securities, notice specifying the terms of the tender and the Publication Date of such notice shall be sent by the Issuer or the Transfer Agent and Registrar to DEPOSITORY TRUST COMPANY by a secure means and in a timely manner as described in paragraph 4. Notices to DEPOSITORY TRUST COMPANY pursuant to this paragraph and notices of other corporate actions (including mandatory tenders, exchanges and capital changes), shall be sent, unless notification to another department is expressly provided for herein, by telecopy to DEPOSITORY TRUST COMPANY's Reorganization Department at (212)709-1093 or (212) 709-1094 and receipt of such notice shall be confirmed by telephoning (212)709-6884, or by mail or any other means to: B-3 64 B-4 65 Manager, Reorganization Department Reorganization window The Depository Trust Company 7 Hanover Square, 23rd Floor New York, New York 10004-2695 7. All notices and payment advices sent to DEPOSITORY TRUST COMPANY shall contain the CUSIP number or numbers of the Preferred Securities and the accompanying designation of the Preferred Securities, which, as of the date of this letter, is IBC Capital Trust Preferred Securities." 8. Distribution payments or other cash payments with respect to the Preferred Securities evidenced by the Global Certificate shall be received by Cede & Co., as nominee of DEPOSITORY TRUST COMPANY, or its registered assigns in next day funds on each payment date (or in accordance with existing arrangements between the Issuer or the Transfer Agent and Registrar and DEPOSITORY TRUST COMPANY). Such payments shall be made payable to the order of Cede & Co., and shall be addressed as follows: NDFS Redemption Department The Depository Trust Company 7 Hanover Square, 23rd Floor New York, New York 10004-2695 9. DEPOSITORY TRUST COMPANY may by prior written notice direct the Issuer and the Transfer Agent and Registrar to use any other telecopy number or address of DEPOSITORY TRUST COMPANY as the number or address to which notices or payments may be sent. 10. In the event of a conversion, redemption, or any other similar transaction (e.g., tender made and accepted in response to the Issuer's or the Transfer Agent and Registrar's invitation) necessitating a reduction in the aggregate number of Preferred Securities outstanding evidenced by the Global Certificate, DEPOSITORY TRUST COMPANY, in its discretion: (a) may request the Issuer or the Transfer Agent and Registrar to issue and countersign a new Global Certificate; or (b) may make an appropriate notation on the Global Certificate indicating the date and amount of such reduction. 11. DEPOSITORY TRUST COMPANY may discontinue its services as a securities depositary with respect to the Preferred Securities at any time by giving at least 90 days' prior written notice to the Issuer and the Transfer Agent and Registrar (at which time DEPOSITORY TRUST COMPANY will confirm with the Issuer or the Transfer Agent and Registrar the aggregate number of Preferred B-5 66 Securities deposited with it) and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Issuer may determine to make alternative arrangements for book-entry settlement for the Preferred Securities, make available one or more separate global certificates evidencing Preferred Securities to any Participant having Preferred Securities credited to its DEPOSITORY TRUST COMPANY account, or issue definitive Preferred Securities to the beneficial holders thereof, and in any such case, DEPOSITORY TRUST COMPANY agrees to cooperate fully with the Issuer and the Transfer Agent and Registrar and to return the Global Certificate, duly endorsed for transfer as directed by the Issuer or the Transfer Agent and Registrar, together with any other documents of transfer reasonably requested by the Issuer or the Transfer Agent and Registrar. 12. In the event that the Issuer determines that beneficial owners of Preferred Securities shall be able to obtain definitive Preferred Securities, the Issuer or the Transfer Agent and Registrar shall notify DEPOSITORY TRUST COMPANY of the availability of certificates. In such event, the Issuer or the Transfer Agent and Registrar shall issue, transfer and exchange certificates in appropriate amounts, as required by DEPOSITORY TRUST COMPANY and others, and DEPOSITORY TRUST COMPANY agrees to cooperate fully with the Issuer and the Transfer Agent and Registrar and to return the Global Certificate, duly endorsed for transfer as directed by the Issuer or the Transfer Agent and Registrar, together with any other documents of transfer reasonably requested by the Issuer or the Transfer Agent and Registrar. 13. This letter may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. B-6 67 Nothing herein shall be deemed to require the Transfer Agent and Registrar to advance funds on behalf of IBC Capital. Very truly yours, INDEPENDENT BANK CORPORATION (As Issuer) By: __________________________________ Name: Title: STATE STREET BANK AND TRUST COMPANY as Property Trustee and as Transfer Agent and Registrar By: __________________________________ Name: Title: RECEIVED AND ACCEPTED: THE DEPOSITORY TRUST COMPANY B-7 68 EXHIBIT C THIS CERTIFICATE IS NOT TRANSFERABLE Certificate Number ______ Number of Common Securities Certificate Evidencing Common Securities of IBC Capital Finance % Common Securities (liquidation amount $25 per Common Security) IBC CAPITAL FINANCE, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that INDEPENDENT BANK 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 _____% Common Securities (liquidation amount $25 per Common Security) (the "Common Securities"). In accordance with Section 510 of the Trust Agreement (as defined below), the Common Securities are not transferable and any attempted transfer hereof shall be void. The designations, rights, privileges, restrictions, preferences, and other terms and provisions of the Common Securities are set forth in, and this certificate and the Common Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Trust Agreement of the Trust dated as of November ____, 1996, as the same may be amended from time to time (the "Trust Agreement"), including the designation of the terms of the Common Securities as set forth therein. The Trust will furnish a copy of the Trust Agreement to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon 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 November, 1996. IBC CAPITAL FINANCE By ____________________________ Name: Title: C-1 69 EXHIBIT D AGREEMENT AS TO EXPENSES AND LIABILITIES AGREEMENT dated as of November ____, 1996, between Independent Bank Corporation, a Michigan corporation ("IBC"), and IBC Capital Finance, a Delaware business trust (the "Trust"). WHEREAS, the Trust intends to issue its common securities (the "Common Securities") to, and receive Debentures from, IBC and to issue and sell _____% Preferred Securities (the "Preferred Securities") with such powers, preferences and special rights and restrictions as are set forth in the Trust Agreement of the Trust dated as of November ___, 1996, as the same may be amended from time to time (the "Trust Agreement"); WHEREAS, IBC will directly or indirectly own all of the Common Securities of the Trust and will issue the Debentures; NOW, THEREFORE, in consideration of the purchase by each holder of the Preferred Securities, which purchase IBC hereby agrees shall benefit IBC and which purchase IBC acknowledges will be made in reliance upon the execution and delivery of this Agreement, IBC, including in its capacity as holder of the Common Securities, and the Trust hereby agree as follows: ARTICLE I SECTION 1. 1. GUARANTEE BY IBC. Subject to the terms and conditions hereof, IBC, 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 D-1 70 or any Beneficiary must restore payment of any sums paid under the Preferred Securities, under any obligation, under the Guarantee Agreement dated the date hereof by IBC and State Street Bank & 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. IBC hereby waives notice of acceptance of this Agreement and of any obligation to which it applies or may apply, and IBC 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 IBC 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, IBC with respect to the happening of any of the foregoing. SECTION 1.5. ENFORCEMENT. A Beneficiary may enforce this Agreement directly against IBC, and IBC waives any right or remedy to require that any action be brought against the Trust or any other person or entity before proceeding against IBC. D-2 71 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 IBC and shall inure to the benefit of the Beneficiaries. SECTION 2.2. AMENDMENT. So long as there remains any Beneficiary or any Preferred Securities of any series 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. 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 answerback, if sent by telex): IBC Capital c/o State Street Bank and Trust Company ________________________________________ ________________________________________ Facsimile No.: _________________________ Attention: _____________________________ Independent Bank Corporation 230 West Main Street Ionia, MI 48846 Facsimile No.:________________________ 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 Michigan (without regard to conflict of laws principles). [SIGNATURES ARE ON THE FOLLOWING PAGE] D-3 72 THIS AGREEMENT is executed as of the day and year first above written. INDEPENDENT BANK CORPORATION By: _____________________________ Name: Title: IBC CAPITAL FINANCE By: _____________________________ Name: Title: Administrative Trustee D-4 73 EXHIBIT E This Preferred Security is a Global Certificate within the meaning of the Trust Agreement hereinafter referred to and is registered in the name of The Depository Trust Company (the "Depository") or a nominee of the Depositary. This Preferred Security is exchangeable for Preferred Securities registered in the name of a person other than the Depository or its nominee only in the limited circumstances described in the Trust Agreement (as defined below) and no transfer of this Preferred Security (other than a transfer of this Preferred Security as a whole by the Depository to a nominee of the Depository or by a nominee of the Depository to the Depository or another nominee of the Depository) may be registered except in limited circumstances. Unless this Preferred Security is presented by an authorized representative of State Street Bank and Trust Company to IBC Capital Finance or its agent for registration of transfer, exchange or payment, and any Preferred Security issued is registered in the name of Cede & Co., or such other name as requested by an authorized representative of State Street Bank and Trust Company and any payment hereon is made to Cede & Co. ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co. has an interest herein. Certificate Number Number of Preferred Securities P- CUSIP NO. Certificate Evidencing Preferred Securities of IBC Capital Finance % Cumulative Trust Preferred Securities (liquidation amount $25 per Preferred Security) IBC CAPITAL FINANCE, 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 of the Trust representing undivided beneficial interests in the assets of the Trust and designated the % Trust Preferred Securities (liquidation amount $25 per Preferred Security) (the "Preferred Securities"). The Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer as provided in Section 504 of the Trust Agreement (as defined below). The designations, rights, privileges, restrictions, preferences, and other terms and provisions of the Preferred Securities are set forth in, and this certificate and the Preferred Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of, the Amended and Restated Trust Agreement of the Trust dated as of November , 1996, 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 E-1 74 Holder is entitled to the benefits of the Guarantee Agreement entered into by Independent Bank Corporation, a Michigan corporation, and State Street Bank & Trust Company, as guarantee trustee, dated as of November , 1996 (the "Guarantee"), to the extent provided therein. The Trust will furnish a copy of the Trust Agreement and the Guarantee to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon 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 November, 1996. IBC CAPITAL FINANCE By ______________________________ NAME: Title: E-2 EX-5.1 5 EXHIBIT 5.1 1 EXHIBIT 5.1 December 6, 1996 Board of Directors Independent Bank Corporation 230 West Michigan Street Ionia, MI 48846 IBC Capital Finance c/o Independent Bank Corporation 230 West Michigan Street Ionia, MI 48846 Gentlemen: We have acted as counsel to Independent Bank Corporation, a Michigan corporation (the "Company"), and IBC Capital Finance, a Delaware statutory business trust ("IBC Capital"), in connection with the preparation of a Registration Statement on Form S-2 (Registration No. 333-145507) filed by the Company and IBC Capital with the Securities and Exchange Commission (the "SEC"), which Registration Statement was amended by Amendment No. 1 filed with the SEC on November 8, 1996, and Amendment No. 2 filed with the SEC on December 6, 1996 (such Registration Statement, as so amended, the "Registration Statement") for the purpose of registering under the Securities Act of 1933, as amended, Cumulative Trust Preferred Securities (the "Preferred Securities") of IBC Capital, Subordinated Debentures (the "Subordinated Debentures") to be issued by the Company, and the guarantee of the Company pursuant to the Preferred Securities Guarantee Agreement (the "Guarantee"). In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of (i) the certificate of trust IBC Capital (the "Certificate of Trust") filed with the Secretary of State of the State of Delaware on November 7, 1996, (ii) the form of the Amended and Restated Trust Agreement of IBC Capital; (iii) the form of the Preferred Securities of IBC Capital; (iv) the form of the Guarantee between the Company and State Street Bank & Trust Company, as trustee; (v) the form of the Subordinated Debentures; and (vi) the form of the subordinated debenture indenture (the "Indenture"), between the Company and State Street Bank & Trust Company, as trustee, in each case in the form filed as an exhibit to the Registration Statement. We have also examined originals or copies, certified, or otherwise identified to our satisfaction, of such other documents, certificates, and records as we have deemed necessary or appropriate as a basis for the opinions set forth herein. In our examination, we have assumed the legal capacity of all natural persons,the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the 2 Board of Directors December 6, 1996 Page 2 conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. In making our examination of documents executed by parties other than the Company or IBC Capital, we have assumed that such parties had the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties of such documents and that, except as set forth in paragraphs (1) and (2) below, such documents constitute valid and binding obligations of such parties. In addition, we have assumed that the Amended and Restated Trust Agreement of IBC Capital, the Preferred Securities of IBC Capital, the Guarantee, the Subordinated Debentures and the Indenture when executed, will be executed in substantially the form reviewed by us and that the terms of the Subordinated Debentures when established in conformity with the Indenture will not violate any applicable law. As to any facts material to the opinions expressed herein which were not independently established or verified, we have relied upon oral or written statements and representations of officers, trustees, and other representatives of the Company, IBC Capital, and others. Members of our firm are admitted to the bar in the state of Michigan, and we express no opinion as to the laws of any other jurisdiction. Based upon and subject to the foregoing and to other qualifications and limitations set forth herein, we are of the opinion that: 1. After the Indenture has been duly executed and delivered, the Subordinated Debentures, when duly executed, delivered, authenticated and issued in accordance with the Indenture and delivered and paid for as contemplated by the Registration Statement, will be valid and binding obligations of the Company, entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, except to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors' rights generally, and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). 2. The Guarantee, when duly executed and delivered by the parties thereto, will be a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except to the extent that enforcement thereof may be limited by (i) bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors' rights generally, and (ii) general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity). We hereby consent to the reference to us in the caption "Validity of Securities" in the Prospectus forming a part of the Registration Statement. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the 3 Board of Directors December 6, 1996 Page 3 Securities Act of 1933, as amended, or under the rules and regulations of the Securities and Exchange Commission relating thereto. Very truly yours, VARNUM, RIDDERING, SCHMIDT & HOWLETT LLP /s/ Michael G. Wooldridge Michael G. Wooldridge EX-5.2 6 EXHIBIT 5.2 1 EXHIBIT 5.2 November 8, 1996 IBC Capital Finance c/o Independent Bank Corporation 230 West Main Street Ionia, Michigan 48846 Re: IBC Capital Finance Ladies and Gentlemen: We have acted as special Delaware counsel for IBC Capital Finance, a Delaware business trust (the "Trust"), in connection with the matters set forth herein. At your request, this opinion is being furnished to you. For purposes of giving the opinions hereinafter set forth, our examination of documents has been limited to the examination of originals or copies of the following: (a) The Certificate of Trust of the Trust, dated November 7, 1996 (the "Certificate"), as filed in the office of the Secretary of State of the State of Delaware (the "Secretary of State") on November 7, 1996; (b) The Trust Agreement of the Trust, dated as of November 7, 1996, among Independent Bank Corporation, a Michigan corporation ("IBC"), and the trustees of the Trust named therein; (c) The Registration Statement (the "Registration Statement") on Form S-2, including a prospectus (the "Prospectus") relating to the __% Preferred Securities of the Trust representing preferred undivided beneficial interests in the Trust (each, a "Preferred Security" and 2 Independent Bank Corporation November 8, 1996 Page 2 collectively, the "Preferred Securities"), as filed by IBC, the Trust and others as set forth therein with the Securities and Exchange Commission on November 8, 1996; (d) A form of Amended and Restated Trust Agreement of the Trust, to be entered into among IBC, the trustees of the Trust named therein, and the holders, from time to time, of undivided beneficial interests in the Trust (the "Trust Agreement"), attached as an exhibit to the Registration Statement; and (e) A Certificate of Good Standing for the Trust, dated the date hereof, obtained from the Secretary of State. Initially capitalized terms used herein and not otherwise defined are used as defined in the Trust Agreement. For purposes of this opinion, we have not reviewed any documents other than the documents listed above, and we have assumed that there exists no provision in any document that we have not reviewed that bears upon or is inconsistent with the opinions stated herein. We have conducted no independent factual investigation of our own but rather have relied solely upon the foregoing documents, the statements and information set forth therein and the additional matters recited or assumed herein, all of which we have assumed to be true, complete and accurate in all material respects. With respect to all documents examined by us, we have assumed (i) the authenticity of all documents submitted to us as authentic originals, (ii) the conformity with the originals of all documents submitted to us as copies or forms, and (iii) the genuineness of all signatures. For purposes of this opinion, we have assumed (i) that the Trust Agreement constitutes the entire agreement among the parties thereto with respect to the subject matter thereof, including with respect to the creation, operation and termination of the Trust, and that the Trust Agreement and the Certificate are in full force and effect and have not been amended, (ii) except to the extent provided in paragraph 1 below, the due creation or due organization or due formation, as the case may be, and valid existence in good standing of each party to the documents examined by us under the laws of the jurisdiction governing its creation, organization or formation, (iii) the legal capacity of natural persons who are parties to the documents examined by us, (iv) that each of the parties to the documents examined by us has the power and authority to execute and deliver, and to perform its obligations under, such documents, (v) the due authorization, execution and delivery by all parties thereto of all documents examined by us, (vi) the receipt by each Person to whom a Preferred Security is to be issued by the Trust (collectively, the "Preferred Security Holders") of a Preferred Security Certificate for such Preferred Security and the payment for the Preferred Security acquired by it, in accordance with the Trust Agreement and the Prospectus, and (vii) that the Preferred Securities are issued and sold to the Preferred Security Holders in accordance with the Trust Agreement and the Prospectus. We have not 3 Independent Bank Corporation November 8, 1996 Page 3 participated in the preparation of the Registration Statement and assume no responsibility for its contents. This opinion is limited to the laws of the State of Delaware (excluding the securities laws of the State of Delaware), and we have not considered and express no opinion on the laws of any other jurisdiction, including federal laws and rules and regulations relating thereto. Our opinions are rendered only with respect to Delaware laws and rules, regulations and orders thereunder which are currently in effect. Based upon the foregoing, and upon our examination of such questions of law and statutes of the State of Delaware as we have considered necessary or appropriate, and subject to the assumptions, qualifications, limitations and exceptions set forth herein, we are of the opinion that: 1. The Trust has been duly created and is validly existing in good standing as a business trust under the Delaware Business Trust Act, 12 Del. C. Section 3801, et seq. 2. The Preferred Securities will represent valid and, subject to the qualifications set forth in paragraph 3 below, fully paid and nonassessable undivided beneficial interests in the assets of the Trust. 3. The Preferred Security Holders, as beneficial owners of the Trust, will be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. We note that the Preferred Security Holders may be obligated to make payments as set forth in the Trust Agreement. We consent to the filing of this opinion with the Securities and Exchange Commission as an exhibit to the Registration Statement. In addition, we hereby consent to the use of our name under the heading "Validity of Securities" in the Prospectus. In giving the foregoing consents, we do not thereby admit that we come within the category of Persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Securities and Exchange Commission thereunder. Except as stated above, without our prior written consent, this opinion may not be furnished or quoted to, or relied upon by, any other Person for any purpose. Very truly yours, /s/ Richards, Layton & Finger EAM EX-8 7 EXHIBIT 8 1 EXHIBIT 8 December 5, 1996 Board of Directors Independent Bank Corporation 230 West Main Street Ionia, Michigan 48846 IBC Capital Finance c/o Independent Bank Corporation 230 West Main Street Ionia, Michigan 48846 Re: Registration Statement on Form S-2 Registration No. 333-14507 Ladies and Gentlemen: We have acted as special counsel for Independent Bank Corporation, a Michigan corporation (the "Company"), and IBC Capital Finance ("IBC Capital"), a statutory business trust formed under the laws of Delaware, in connection with the above-captioned Registration Statement on Form S-2, filed with the Securities and Exchange Commission (the "Commission"), on October 21, 1996, under the Securities Act of 1933, as amended (the "Act"), and Amendment No. 1 thereto, filed with the Commission on November 8, 1996, and Amendment No. 2 thereto, filed with the Commission on December 6, 1996 (such Registration Statement, as so amended, being hereinafter referred to as the "Registration Statement"), for the purpose of registering IBC Capital's Preferred Securities representing undivided beneficial interests in the assets of IBC Capital, and Subordinated Debentures issued by the Company to IBC Capital in connection with the sale of the Preferred Securities. In connection with this opinion, we have examined originals or copies, certified or otherwise identified to our satisfaction, of (i) the certificate of trust IBC Capital (the "Certificate of Trust") filed with the Secretary of State of the State of Delaware on November 7, 1996, (ii) the form of the Amended and Restated Trust Agreement of IBC Capital; (iii) the form of the Preferred Securities of IBC Capital; (iv) the form of the Guarantee between the Company and State Street Bank & Trust Company, as trustee; (v) the form of the Subordinated Debentures; and (vi) the form of the subordinated debenture indenture (the "Indenture"), between the Company and State Street Bank & Trust Company, as trustee, in each case in the form filed as an exhibit to the Registration Statement. We have also examined originals or copies, certified, or otherwise identified to our satisfaction, of such other documents, certificates, and records as we have deemed necessary or appropriate as a basis for the opinions set forth herein. In our examination, we have assumed the legal capacity of all natural persons,the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such copies. In making our examination of documents executed by parties other than the Company or IBC Capital, we have assumed that such parties had the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties of such documents and that such documents constitute valid and binding obligations of such parties. In addition, we have assumed that the Amended and Restated Trust Agreement of IBC Capital, the Preferred Securities of IBC Capital, the Guarantee, the Subordinated Debentures and the Indenture when executed, will be executed in substantially the form reviewed by us and that the terms of the Subordinated Debentures when established in conformity with the Indenture will not violate any applicable law. As to any facts material to the opinions expressed herein which were not independently established or verified, we have relied upon oral or written statements and representations of officers, trustees, and other representatives of the Company, IBC Capital, and others. We hereby confirm that, although the discussion set forth under the heading "UNITED STATES FEDERAL INCOME TAXATION" in the form of Prospectus for the 2 Board of Directors Independent Bank Corporation IBC Capital Finance December 5, 1996 Page 2 offering of Preferred Securities filed as part of the Registration Statement ("Prospectus"), does not purport to discuss all possible United States federal income tax consequences of the purchase, ownership and disposition of Preferred Securities, in our opinion, such discussion constitutes, in all material respects, a fair and accurate summary of the United States federal income tax consequences of the purchase, ownership and disposition of Preferred Securities, based upon current law. It is possible that contrary positions may be taken by the Internal Revenue Service and that a court may agree with such contrary positions. This opinion is furnished to you solely for your benefit in connection with the filing of the Registration Statement and, except as set forth below, is not to be used, circulated, quoted or otherwise referred to for any other purpose or relied upon by any other person for any purpose without our written consent. We hereby consent to the use of our name under the heading "Validity of Securities" in the Prospectus and the filing of this opinion with the Commission as Exhibit 8 to the Registration Statement. In giving this consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, or the rules and regulations of the Commission promulgated thereunder. This opinion is expressed as of the date hereof unless otherwise expressly stated and applies only to the disclosure set forth in the Prospectus and Registration Statement filed as of the date hereof. We disclaim any undertaking to advise you of any subsequent changes of the facts stated or assumed herein or any subsequent changes in applicable law. Very truly yours, VARNUM, RIDDERING, SCHMIDT & HOWLETT LLP /s/ Kaplin S. Jones Kaplin S. Jones EX-12 8 EXHIBIT 12 1 EXHIBIT 12 INDEPENDENT BANK CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN THOUSANDS)
September 30, December 31, 1996 1995 1995 1994 1993 1992 1991 --------------------------------------------------------------------------- Net income 5,819 4,987 6,810 6,031 5,606 5,109 4,018 Federal income tax expense 2,466 1,948 2,700 2,329 2,165 2,020 1,619 Extraordinary item 0 0 0 0 0 0 85 Less: Interest capitalized 0 0 0 0 0 0 0 --------------------------------------------------------------------------- 8,285 6,935 9,510 8,360 7,771 7,129 5,722 --------------------------------------------------------------------------- Fixed charges: Interest 17,548 12,881 17,900 12,585 12,305 15,150 20,538 Amortization of debt discount and expense 0 0 0 0 0 0 0 Portion of rents considered to represent an interest factor 0 0 0 0 0 0 0 ----------------------------------------------------------------------------- 17,548 12,881 17,900 12,585 12,305 15,150 20,538 ----------------------------------------------------------------------------- Less: Interest on deposits 11,598 9,193 12,470 11,092 12,027 14,856 19,918 ----------------------------------------------------------------------------- 5,950 3,688 5,430 1,493 278 294 620 ----------------------------------------------------------------------------- Ratio of Earnings to Fixed Charges Including interest on deposits 1.47 1.54 1.53 1.66 1.63 1.47 1.28 Excluding interest on deposits 2.39 2.88 2.75 6.60 28.95 25.25 10.23
Page 1 EX-23.1 9 EXHIBIT 23.1 1 EXHIBIT 23.1 Consent of Independent Certified Public Accountants The Board of Directors Independent Bank Corporation: We consent to the use of our report included herein and incorporated herein by reference and to the reference to our firm under the heading "Experts" in the prospectus. KPMG Peat Marwick LLP Lansing, Michigan December 6, 1996 EX-23.2 10 EXHIBIT 23.2 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the use in this Current Report of Independent Bank Corporation on Form S-2 of our report dated March 8, 1996, included herein, on the financial statements of North Bank Corporation as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995. /s/ Crowe, Chizek and Company LLP Grand Rapids, Michigan December 6, 1996 EX-25.1 11 EXHIBIT 25.1 1 EXHIBIT 25.1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b)(2) -- STATE STREET BANK AND TRUST COMPANY (Exact name of trustee as specified in its charter) Massachusetts 04-1867445 (Jurisdiction of incorporation or (I.R.S. Employer organization if not a U.S. national bank) Identification No.) 225 Franklin Street, Boston, Massachusetts 02110 (Address of principal executive offices) (Zip Code) John R. Towers, Esq. Senior Vice President and Corporate Secretary 225 Franklin Street, Boston, Massachusetts 02110 (617) 654-3253 (Name, address and telephone number of agent for service) ------------------- INDEPENDENT BANK CORPORATION ---------------------------- (Exact name of obligor as specified in its charter) MICHIGAN 38-2032782 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 230 West Main Street, Ionia Michigan 48846 (616) 572-9450 (Address of principal executive offices) (Zip Code) ----------------- % SUBORDINATED DEBENTURES DUE 2026 (Title of indenture securities) 2 GENERAL ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO WHICH IT IS SUBJECT. Department of Banking and Insurance of The Commonwealth of Massachusetts, 100 Cambridge Street, Boston, Massachusetts. Board of Governors of the Federal Reserve System, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C. ITEM 2. AFFILIATIONS WITH OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. The obligor is not an affiliate of the trustee or of its parent, State Street Boston Corporation. (See note on page 6.) ITEM 3. THROUGH ITEM 15.NOT APPLICABLE. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY. 1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN EFFECT. A copy of the Articles of Association of the trustee, as now in effect, is on file with the Securities and Exchange Commission as Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION. A copy of a Statement from the Commissioner of Banks of Massachusetts that no certificate of authority for the trustee to commence business was necessary or issued is on file with the Securities and Exchange Commission as Exhibit 2 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE. A copy of the authorization of the trustee to exercise corporate trust powers is on file with the Securities and Exchange Commission as Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS CORRESPONDING THERETO. A copy of the by-laws of the trustee, as now in effect, is on file with the Securities and Exchange Commission as Exhibit 4 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Eastern Edison Company (File No. 33-37823) and is incorporated herein by reference thereto. 1 3 5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN DEFAULT. Not applicable. 6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY SECTION 321(B) OF THE ACT. The consent of the trustee required by Section 321(b) of the Act is annexed hereto as Exhibit 6 and made a part hereof. 7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING AUTHORITY. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority is annexed hereto as Exhibit 7 and made a part hereof. NOTES In answering any item of this Statement of Eligibility and Qualification which relates to matters peculiarly within the knowledge of the obligor or any underwriter for the obligor, the trustee has relied upon information furnished to it by the obligor and the underwriters, and the trustee disclaims responsibility for the accuracy or completeness of such information. The answer furnished to Item 2. of this statement will be amended, if necessary, to reflect any facts which differ from those stated and which would have been required to be stated if known at the date hereof. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, State Street Bank and Trust Company, a corporation organized and existing under the laws of The Commonwealth of Massachusetts, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Boston and The Commonwealth of Massachusetts, on the 20TH DAY OF NOVEMBER, 1996. STATE STREET BANK AND TRUST COMPANY By: /s/ PAUL D. ALLEN ------------------------------ PAUL D. ALLEN VICE PRESIDENT 2 4 EXHIBIT 6 CONSENT OF THE TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the proposed issuance by INDEPENDENT BANK CORPORATION of its SUBORDINATED DEBENTURES DUE 2026, we hereby consent that reports of examination by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. STATE STREET BANK AND TRUST COMPANY By: /s/ PAUL D. ALLEN ---------------------------------- PAUL D. ALLEN VICE PRESIDENT DATED: NOVEMBER 20, 1996 3 5 EXHIBIT 7 Consolidated Report of Condition of State Street Bank and Trust Company of Boston, Massachusetts and foreign and domestic subsidiaries, a state banking institution organized and operating under the banking laws of this commonwealth and a member of the Federal Reserve System, at the close of business June 30, 1996, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act and in accordance with a call made by the Commissioner of Banks under General Laws, Chapter 172, Section 22(a).
Thousands of ASSETS Dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin .................................... 1,787,130 Interest-bearing balances ............................................................. 7,756,486 Securities ............................................................................................ 8,430,910 Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge subsidiary ................................................... 4,090,665 Loans and lease financing receivables: Loans and leases, net of unearned income ................... 4,426,059 Allowance for loan and lease losses ........................ 70,088 Loans and leases, net of unearned income and allowances ............................... 4,355,971 Assets held in trading accounts ....................................................................... 880,647 Premises and fixed assets ............................................................................. 367,731 Other real estate owned ............................................................................... 1,067 Investments in unconsolidated subsidiaries ............................................................ 65,772 Customers' liability to this bank on acceptances outstanding .......................................... 33,530 Intangible assets ..................................................................................... 68,505 Other assets........................................................................................... 1,002,465 ---------- Total assets .......................................................................................... 28,840,879 ========== LIABILITIES Deposits: In domestic offices ................................................................... 7,531,683 Noninterest-bearing ........................ 5,387,924 Interest-bearing ........................... 2,143,759 In foreign offices and Edge subsidiary ................................................ 12,050,265 Noninterest-bearing ........................ 46,768 Interest-bearing ........................... 12,003,497 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge subsidiary ................................................... 5,337,231 Demand notes issued to the U.S. Treasury and Trading Liabilities ...................................... 871,847 Other borrowed money .................................................................................. 794,349 Bank's liability on acceptances executed and outstanding .............................................. 33,530 Other liabilities ..................................................................................... 665,616 ---------- Total liabilities ..................................................................................... 27,284,521 ---------- EQUITY CAPITAL Common stock .......................................................................................... 29,931 Surplus ............................................................................................... 276,915 Undivided profits ..................................................................................... 1,247,942 Cumulative foreign currency translation adjustments .................................................. 1,570 ---------- Total equity capital .................................................................................. 1,556,358 ---------- Total liabilities and equity capital .................................................................. 28,840,879 ==========
4 6 I, Rex S. Schuette, Senior Vice President and Comptroller of the above named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Rex S. Schuette We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. David A. Spina Marshall N. Carter Charles F. Kaye 5 EX-25.2 12 EXHIBIT 25.2 1 EXHIBIT 25.2 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b)(2) -- STATE STREET BANK AND TRUST COMPANY (Exact name of trustee as specified in its charter) Massachusetts 04-1867445 (Jurisdiction of incorporation or (I.R.S. Employer organization if not a U.S. national bank) Identification No.) 225 Franklin Street, Boston, Massachusetts 02110 (Address of principal executive offices) (Zip Code) John R. Towers, Esq. Senior Vice President and Corporate Secretary 225 Franklin Street, Boston, Massachusetts 02110 (617) 654-3253 (Name, address and telephone number of agent for service) ------------------- INDEPENDENT BANK CORPORATION ---------------------------- (Exact name of obligor as specified in its charter) MICHIGAN 38-2032782 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 230 West Main Street, Ionia Michigan 48846 (616) 572-9450 (Address of principal executive offices) (Zip Code) ----------------- GUARANTEE (Title of indenture securities) 2 GENERAL ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO WHICH IT IS SUBJECT. Department of Banking and Insurance of The Commonwealth of Massachusetts, 100 Cambridge Street, Boston, Massachusetts. Board of Governors of the Federal Reserve System, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C. ITEM 2. AFFILIATIONS WITH OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. The obligor is not an affiliate of the trustee or of its parent, State Street Boston Corporation. (See note on page 6.) ITEM 3. THROUGH ITEM 15. NOT APPLICABLE. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY. 1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN EFFECT. A copy of the Articles of Association of the trustee, as now in effect, is on file with the Securities and Exchange Commission as Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION. A copy of a Statement from the Commissioner of Banks of Massachusetts that no certificate of authority for the trustee to commence business was necessary or issued is on file with the Securities and Exchange Commission as Exhibit 2 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE. A copy of the authorization of the trustee to exercise corporate trust powers is on file with the Securities and Exchange Commission as Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS CORRESPONDING THERETO. A copy of the by-laws of the trustee, as now in effect, is on file with the Securities and Exchange Commission as Exhibit 4 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Eastern Edison Company (File No. 33-37823) and is incorporated herein by reference thereto. 1 3 5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN DEFAULT. Not applicable. 6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY SECTION 321(B) OF THE ACT. The consent of the trustee required by Section 321(b) of the Act is annexed hereto as Exhibit 6 and made a part hereof. 7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING AUTHORITY. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority is annexed hereto as Exhibit 7 and made a part hereof. NOTES In answering any item of this Statement of Eligibility and Qualification which relates to matters peculiarly within the knowledge of the obligor or any underwriter of the obligor, the trustee has relied upon information furnished to it by the obligor and the underwriters, and the trustee disclaims responsibility for the accuracy or completeness of such information. The answer to Item 2. of this statement will be amended, if necessary, to reflect any facts which differ from those stated and which would have been required to be stated if known at the date hereof. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, State Street Bank and Trust Company, a corporation duly organized and existing under the laws of The Commonwealth of Massachusetts, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Boston and The Commonwealth of Massachusetts, on the 20TH DAY OF NOVEMBER, 1996. STATE STREET BANK AND TRUST COMPANY By: /s/ PAUL D. ALLEN ------------------------------ PAUL D. ALLEN VICE PRESIDENT 2 4 EXHIBIT 6 CONSENT OF THE TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the proposed issuance by INDEPENDENT BANK CORPORATION of its GUARANTEE, we hereby consent that reports of examination by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. STATE STREET BANK AND TRUST COMPANY By: /s/ PAUL D. ALLEN ---------------------------------- PAUL D. ALLEN VICE PRESIDENT DATED: NOVEMBER 20, 1996 3 5 EXHIBIT 7 Consolidated Report of Condition of State Street Bank and Trust Company of Boston, Massachusetts and foreign and domestic subsidiaries, a state banking institution organized and operating under the banking laws of this commonwealth and a member of the Federal Reserve System, at the close of business June 30, 1996, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act and in accordance with a call made by the Commissioner of Banks under General Laws, Chapter 172, Section 22(a).
Thousands of ASSETS Dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin .................................... 1,787,130 Interest-bearing balances ............................................................. 7,756,486 Securities ............................................................................................ 8,430,910 Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge subsidiary ................................................... 4,090,665 Loans and lease financing receivables: Loans and leases, net of unearned income ................... 4,426,059 Allowance for loan and lease losses ........................ 70,088 Loans and leases, net of unearned income and allowances ............................... 4,355,971 Assets held in trading accounts ....................................................................... 880,647 Premises and fixed assets ............................................................................. 367,731 Other real estate owned ............................................................................... 1,067 Investments in unconsolidated subsidiaries ............................................................ 65,772 Customers' liability to this bank on acceptances outstanding .......................................... 33,530 Intangible assets ..................................................................................... 68,505 Other assets........................................................................................... 1,002,465 ---------- Total assets .......................................................................................... 28,840,879 ========== LIABILITIES Deposits: In domestic offices ................................................................... 7,531,683 Noninterest-bearing ........................ 5,387,924 Interest-bearing ........................... 2,143,759 In foreign offices and Edge subsidiary ................................................ 12,050,265 Noninterest-bearing ........................ 46,768 Interest-bearing ........................... 12,003,497 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge subsidiary ................................................... 5,337,231 Demand notes issued to the U.S. Treasury and Trading Liabilities ...................................... 871,847 Other borrowed money .................................................................................. 794,349 Bank's liability on acceptances executed and outstanding .............................................. 33,530 Other liabilities ..................................................................................... 665,616 ---------- Total liabilities ..................................................................................... 27,284,521 ---------- EQUITY CAPITAL Common stock .......................................................................................... 29,931 Surplus ............................................................................................... 276,915 Undivided profits ..................................................................................... 1,247,942 Cumulative foreign currency translation adjustments .................................................. 1,570 ---------- Total equity capital .................................................................................. 1,556,358 ---------- Total liabilities and equity capital .................................................................. 28,840,879 ==========
4 6 I, Rex S. Schuette, Senior Vice President and Comptroller of the above named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Rex S. Schuette We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. David A. Spina Marshall N. Carter Charles F. Kaye 5 EX-25.3 13 EXHIBIT 25.3 1 EXHIBIT 25.3 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------- STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b)(2) -- STATE STREET BANK AND TRUST COMPANY (Exact name of trustee as specified in its charter) Massachusetts 04-1867445 (Jurisdiction of incorporation or (I.R.S. Employer organization if not a U.S. national bank) Identification No.) 225 Franklin Street, Boston, Massachusetts 02110 (Address of principal executive offices) (Zip Code) John R. Towers, Esq. Senior Vice President and Corporate Secretary 225 Franklin Street, Boston, Massachusetts 02110 (617) 654-3253 (Name, address and telephone number of agent for service) ------------------- IBC CAPITAL FINANCE ------------------- (Exact name of obligor as specified in its charter) Delaware 38-6681043 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 230 West Main Street, Ionia Michigan 48846 (616) 572-9450 (Address of principal executive offices) (Zip Code) ----------------- Preferred Securities (Title of indenture securities) 2 GENERAL ITEM 1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE: (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISORY AUTHORITY TO WHICH IT IS SUBJECT. Department of Banking and Insurance of The Commonwealth of Massachusetts, 100 Cambridge Street, Boston, Massachusetts. Board of Governors of the Federal Reserve System, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C. ITEM 2. AFFILIATIONS WITH OBLIGOR. IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH AFFILIATION. The obligor is not an affiliate of the trustee or of its parent, State Street Boston Corporation. (See note on page 6.) ITEM 3. THROUGH ITEM 15. NOT APPLICABLE. ITEM 16. LIST OF EXHIBITS. LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF ELIGIBILITY. 1. A COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN EFFECT. A copy of the Articles of Association of the trustee, as now in effect, is on file with the Securities and Exchange Commission as Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 2. A COPY OF THE CERTIFICATE OF AUTHORITY OF THE TRUSTEE TO COMMENCE BUSINESS, IF NOT CONTAINED IN THE ARTICLES OF ASSOCIATION. A copy of a Statement from the Commissioner of Banks of Massachusetts that no certificate of authority for the trustee to commence business was necessary or issued is on file with the Securities and Exchange Commission as Exhibit 2 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 3. A COPY OF THE AUTHORIZATION OF THE TRUSTEE TO EXERCISE CORPORATE TRUST POWERS, IF SUCH AUTHORIZATION IS NOT CONTAINED IN THE DOCUMENTS SPECIFIED IN PARAGRAPH (1) OR (2), ABOVE. A copy of the authorization of the trustee to exercise corporate trust powers is on file with the Securities and Exchange Commission as Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 4. A COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE, OR INSTRUMENTS CORRESPONDING THERETO. A copy of the by-laws of the trustee, as now in effect, is on file with the Securities and Exchange Commission as Exhibit 4 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Eastern Edison Company (File No. 33-37823) and is incorporated herein by reference thereto. 1 3 5. A COPY OF EACH INDENTURE REFERRED TO IN ITEM 4. IF THE OBLIGOR IS IN DEFAULT. Not applicable. 6. THE CONSENTS OF UNITED STATES INSTITUTIONAL TRUSTEES REQUIRED BY SECTION 321(b) OF THE ACT. The consent of the trustee required by Section 321(b) of the Act is annexed hereto as Exhibit 6 and made a part hereof. 7. A COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE PUBLISHED PURSUANT TO LAW OR THE REQUIREMENTS OF ITS SUPERVISING OR EXAMINING AUTHORITY. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority is annexed hereto as Exhibit 7 and made a part hereof. NOTES In answering any item of this Statement of Eligibility and Qualification which relates to matters peculiarly within the knowledge of the obligor or any underwriter for the obligor, the trustee has relied upon information furnished to it by the obligor and the underwriters, and the trustee disclaims responsibility for the accuracy or completeness of such information. The answer furnished to Item 2. of this statement will be amended, if necessary, to reflect any facts which differ from those stated and which would have been required to be stated if known at the date hereof. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, State Street Bank and Trust Company, a corporation organized and existing under the laws of The Commonwealth of Massachusetts, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Boston and The Commonwealth of Massachusetts, on the 20TH DAY OF NOVEMBER, 1996. STATE STREET BANK AND TRUST COMPANY By: /s/ PAUL D. ALLEN ------------------------------ PAUL D. ALLEN VICE PRESIDENT 2 4 EXHIBIT 6 CONSENT OF THE TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the proposed issuance by IBC CAPITAL FINANCE of its PREFERRED SECURITIES, we hereby consent that reports of examination by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. STATE STREET BANK AND TRUST COMPANY By: /s/ PAUL D. ALLEN ---------------------------------- PAUL D. ALLEN VICE PRESIDENT DATED: NOVEMBER 20, 1996 3 5 EXHIBIT 7 Consolidated Report of Condition of State Street Bank and Trust Company of Boston, Massachusetts and foreign and domestic subsidiaries, a state banking institution organized and operating under the banking laws of this commonwealth and a member of the Federal Reserve System, at the close of business June 30, 1996, published in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act and in accordance with a call made by the Commissioner of Banks under General Laws, Chapter 172, Section 22(a).
Thousands of ASSETS Dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin .................................... 1,787,130 Interest-bearing balances ............................................................. 7,756,486 Securities ............................................................................................ 8,430,910 Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge subsidiary ................................................... 4,090,665 Loans and lease financing receivables: Loans and leases, net of unearned income ................... 4,426,059 Allowance for loan and lease losses ........................ 70,088 Loans and leases, net of unearned income and allowances ............................... 4,355,971 Assets held in trading accounts ....................................................................... 880,647 Premises and fixed assets ............................................................................. 367,731 Other real estate owned ............................................................................... 1,067 Investments in unconsolidated subsidiaries ............................................................ 65,772 Customers' liability to this bank on acceptances outstanding .......................................... 33,530 Intangible assets ..................................................................................... 68,505 Other assets........................................................................................... 1,002,465 ---------- Total assets .......................................................................................... 28,840,879 ========== LIABILITIES Deposits: In domestic offices ................................................................... 7,531,683 Noninterest-bearing ........................ 5,387,924 Interest-bearing ........................... 2,143,759 In foreign offices and Edge subsidiary ................................................ 12,050,265 Noninterest-bearing ........................ 46,768 Interest-bearing ........................... 12,003,497 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge subsidiary ................................................... 5,337,231 Demand notes issued to the U.S. Treasury and Trading Liabilities ...................................... 871,847 Other borrowed money .................................................................................. 794,349 Bank's liability on acceptances executed and outstanding .............................................. 33,530 Other liabilities ..................................................................................... 665,616 ---------- Total liabilities ..................................................................................... 27,284,521 ---------- EQUITY CAPITAL Common stock .......................................................................................... 29,931 Surplus ............................................................................................... 276,915 Undivided profits ..................................................................................... 1,247,942 Cumulative foreign currency translation adjustments .................................................. 1,570 ---------- Total equity capital .................................................................................. 1,556,358 ---------- Total liabilities and equity capital .................................................................. 28,840,879 ==========
4 6 I, Rex S. Schuette, Senior Vice President and Comptroller of the above named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Rex S. Schuette We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. David A. Spina Marshall N. Carter Charles F. Kaye 5 -----END PRIVACY-ENHANCED MESSAGE-----