-----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, MPqhsB1jFifBdv1Naj4hqaxTd6VbRLURdIyH1ILlx1kLCWdLjd3mA23M4bE5f3xL JcOErI98wwuUUN3F5B1KHQ== 0000950114-96-000352.txt : 19961223 0000950114-96-000352.hdr.sgml : 19961223 ACCESSION NUMBER: 0000950114-96-000352 CONFORMED SUBMISSION TYPE: S-2 PUBLIC DOCUMENT COUNT: 19 FILED AS OF DATE: 19961220 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST BANKS INC CENTRAL INDEX KEY: 0000710507 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 431175538 STATE OF INCORPORATION: MO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-18369 FILM NUMBER: 96683898 BUSINESS ADDRESS: STREET 1: 135 N MERAMEC AVE CITY: ST LOUIS STATE: MO ZIP: 63105 BUSINESS PHONE: 3148544600 MAIL ADDRESS: STREET 1: 135 N MERAMEC AVE CITY: ST LOUIS STATE: MO ZIP: 63105 S-2 1 FIRST BANKS, INC. FORM S-2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 20, 1996 REGISTRATION NO. 333- REGISTRATION NO. 333- -01 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM S-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- FIRST BANKS, INC. FIRST PREFERRED CAPITAL TRUST (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) (EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER) MISSOURI DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 43-1175538 43-1765214 (I.R.S. EMPLOYER IDENTIFICATION NO.) (I.R.S. EMPLOYER IDENTIFICATION NO.)
135 NORTH MERAMEC AVENUE, ST. LOUIS, MISSOURI 63105 (314) 854-4600 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S AND CO-REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE) --------------------- ALLEN H. BLAKE EXECUTIVE VICE PRESIDENT FIRST BANKS, INC. 11901 OLIVE BOULEVARD, ST. LOUIS, MISSOURI 63141 (314) 995-8700 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) --------------------- WITH COPIES TO: THOMAS C. ERB, ESQ. FREDERICK W. SCHERRER, ESQ. LEWIS, RICE & FINGERSH, L.C. BRYAN CAVE LLP 500 NORTH BROADWAY, SUITE 2000 211 NORTH BROADWAY, SUITE 3600 ST. LOUIS, MISSOURI 63102 ST. LOUIS, MISSOURI 63102-2750 (314) 444-7600 (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, check the following box and list the Securities Act registration statement number of 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 TO BE REGISTERED REGISTERED PER UNIT PRICE REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------------------ Preferred Securities of First Preferred Capital Trust......................................... 2,760,000 $25.00 $69,000,000 $20,909.09 - ------------------------------------------------------------------------------------------------------------------------------------ Subordinated Debentures of First Banks, Inc..... -- -- -- - ------------------------------------------------------------------------------------------------------------------------------------ Guarantee of First Banks, Inc., with respect to Preferred Securities.......................... -- -- -- ==================================================================================================================================== Includes 360,000 Preferred Securities which may be sold by First Preferred Capital Trust to cover over-allotments. The Subordinated Debentures will be purchased by First Preferred Capital Trust 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 First Preferred Capital Trust upon its dissolution and the distribution of its assets. This Registration Statement is deemed to cover the Subordinated Debentures of First Banks, Inc., the rights of holders of Subordinated Debentures of First Banks, Inc. 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 First Banks, Inc. 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 THE 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 FIRST BANKS, INC. CROSS REFERENCE SHEET
FORM S-2 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS -------------------------------- ---------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus.................................. Facing Page of Registration Statement; Cross Reference Sheet; Outside Cover Page of Prospectus. 2. Inside Front and Outside Back Cover Pages of Prospectus................................................ Inside Front Cover Page; Back Cover Page; Incorporation of Certain Documents by Reference; Available Information. 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges............................................. Prospectus Summary; Selected Consolidated Financial Data; Risk Factors. 4. Use of Proceeds 5. Determination of Offering Price............................. Not Applicable. 6. Dilution.................................................... Not Applicable. 7. Selling Security Holders 8. Plan of Distribution........................................ Outside Front Cover Page; Underwriting. 9. Description of Securities to be Registered.................. Prospectus Summary; Description of the Preferred Securities; Description of the Subordinated Debentures; Description of the Guaranty; Description of Other Capital Stock. 10. Interests of Named Experts and Counsel...................... Validity of Securities; Experts. 11. Information With Respect to the Registrant.................. Prospectus Summary; Capitalization; Selected Consolidated Financial Data; Management's Discussion and Analysis; Business; Incorporation of Certain Documents by Reference; Description of the Preferred Securities; Description of the Subordinated Debentures; Description of the Guarantee; Relationship Among the Preferred Securities, the Subordinated Debentures and the Guarantee; Description of Other 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 ******************************************************************************** * 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. * ******************************************************************************** SUBJECT TO COMPLETION, DATED DECEMBER 20, 1996 PROSPECTUS 2,400,000 PREFERRED SECURITIES FIRST PREFERRED CAPITAL TRUST % CUMULATIVE TRUST PREFERRED SECURITIES (LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY) FIRST GUARANTEED, AS DESCRIBED HEREIN, BY BANK FIRST BANKS, INC. ----------------- $60,000,000 % SUBORDINATED DEBENTURES OF FIRST BANKS, INC. ----------------- The % Cumulative Trust Preferred Securities (the ``Preferred Securities'') offered hereby represent preferred undivided beneficial interests in the assets of First Preferred Capital Trust, a statutory business trust created under the laws of the State of Delaware (``First Capital''). First Banks, Inc., a Missouri corporation (``First Banks''), will own all the common securities (the ``Common Securities'' and, together with the Preferred Securities, the ``Trust Securities'') representing undivided beneficial interests in the assets of First Capital. (continued on next page) Application has been made to have the Preferred Securities approved for quotation on The Nasdaq Stock Market's National Market under the symbol ``FBNKO.'' ----------------- SEE ``RISK FACTORS'' ON PAGE 8 FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. ----------------- THE SECURITIES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS OR DEPOSIT ACCOUNTS, ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANKING OR NON- BANKING AFFILIATE OF FIRST BANKS (EXCEPT TO THE EXTENT THAT PREFERRED SECURITIES ARE GUARANTEED BY FIRST BANKS AS DESCRIBED HEREIN), ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT 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 DISCOUNT FIRST CAPITAL - ------------------------------------------------------------------------------------------------------------------ Per Preferred Security.......................... $25.00 $ - ------------------------------------------------------------------------------------------------------------------ Total....................................... $60,000,000 $ ================================================================================================================== First Capital and First Banks have each agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See ``Underwriting.'' In view of the fact that the proceeds of the sale of the Preferred Securities will be invested in the Subordinated Debentures, First Banks has agreed to pay the Underwriters as 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.'' Before deducting expenses payable by First Banks, estimated to be $300,000. First Capital has granted the Underwriters an option exercisable within 30 days from the date of this Prospectus to purchase up to 360,000 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 First Capital will be $69,000,000 and $ respectively. See ``Underwriting.''
----------------- The Preferred Securities are offered by the Underwriters subject to receipt and acceptance by them, prior sale and the Underwriters' right to reject any order in whole or in part and to withdraw, cancel or modify the offer without notice. It is expected that delivery of certificates for the Preferred Securities will be made on or about , 1997. STIFEL, NICOLAUS & COMPANY INCORPORATED , 1997 4 (continued from previous page) State Street Bank and Trust Company is the Property Trustee (as defined herein) of First Capital. First Capital exists for the purpose of issuing the Preferred Securities and investing the proceeds thereof in an equivalent amount of % Subordinated Debentures (the ``Subordinated Debentures'') of First Banks. The Subordinated Debentures will mature on March 31, 2027, which date may be (i) shortened to a date not earlier than March 31, 2002, or (ii) extended to a date not later than March 31, 2046, in each case if certain conditions are met (including, in the case of shortening the Stated Maturity (as defined herein), First Banks having received prior approval of the Board of 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 the Preferred Securities--Subordination of Common Securities.'' Holders of Preferred Securities are entitled to receive preferential cumulative cash distributions, at the annual rate of % of the liquidation amount of $25 per Preferred Security (the ``Liquidation Amount''), 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 (the ``Distributions''). First Banks has the right, so long as no Debenture Event of Default (as defined herein) has occurred and is continuing, 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 ``Extended Interest Payment Period''); provided that no Extended Interest Payment Period may extend beyond the Stated Maturity of the Subordinated Debentures. Upon the termination of any such Extended Interest Payment Period and the payment of all amounts then due, First Banks may elect to begin a new Extended Interest Payment 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 First Banks 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 EXTENDED INTEREST PAYMENT 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 INCLUDE INTEREST INCOME IN THEIR GROSS INCOME FOR UNITED STATES FEDERAL INCOME TAX PURPOSES IN ADVANCE OF RECEIPT OF THE CASH DISTRIBUTIONS WITH RESPECT TO SUCH DEFERRED INTEREST PAYMENTS. 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 FIRST 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 ITS PRO RATA SHARE OF THE UNDERLYING SUBORDINATED DEBENTURES DEEMED DISPOSED OF. See ``Description of the Subordinated Debentures--Option to Extend Interest Payment Period,'' ``Certain Federal Income Tax Consequences--Potential Extension of Interest Payment Period and Original Issue Discount'' and ``--Dispositions of Preferred Securities.'' First Banks and First Capital believe that, taken together, the obligations of First Banks under the Guarantee, the Trust Agreement, the Subordinated Debentures, the Indenture and the Expense Agreement (each as defined herein) provide, in the aggregate, a full, irrevocable and unconditional guaranty, on a subordinated basis, of all of the obligations of First Capital under the Preferred Securities. See ``Relationship Among the Preferred Securities, the Subordinated Debentures and the Guarantee--Full and Unconditional Guarantee.'' The Guarantee of First Banks 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 First Capital, as described herein. See ``Description of the Guarantee--General.'' If First Banks does not make interest payments on the Subordinated Debentures held by First Capital, First Capital will have insufficient funds to pay Distributions on the Preferred Securities. The Guarantee does not cover payments of Distributions when First Capital does not have sufficient funds to pay such Distributions. In such event, a holder of Preferred Securities may institute a legal proceeding directly against First Banks pursuant to the terms of the Indenture to enforce payments of amounts equal to such Distributions to such holder. See ``Description of the Subordinated Debentures--Enforcement of Certain Rights by Holders of the Preferred Securities.'' The obligations of First Banks under the Guarantee and the Preferred Securities are subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations (each as defined herein) of First Banks. The Subordinated Debentures are unsecured obligations of First Banks and are subordinated to all Senior Debt, Subordinated Debt and Additional Senior Obligations of First Banks. (continued on next page) 5 (continued from previous page) 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 under applicable capital guidelines or policies of the Federal Reserve, the Subordinated Debentures are redeemable prior to maturity at the option of First Banks (i) on or after March 31, 2002, in whole at any time or in part from time to time, or (ii) at any time, in whole (but not in part), within 180 days following the occurrence of a Tax Event or an Investment Company Event (each 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 the Preferred Securities--Redemption or Exchange.'' First Banks has the right at any time to dissolve, wind-up or terminate First Capital subject to First Banks having received prior approval of the Federal Reserve to do so if then required under applicable capital guidelines or policies of the Federal Reserve. In the event of the voluntary or involuntary dissolution, winding up or termination of First Capital, after satisfaction of liabilities to creditors of First 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 Subordinated Debenture having an aggregate principal amount equal to the Liquidation Amount of such Preferred Securities (and carrying with it accumulated interest in an amount equal to the accumulated and unpaid Distributions then due on such Preferred Securities), subject to certain exceptions. See ``Description of the Preferred Securities--Redemption or Exchange'' and ``--Liquidation Distribution Upon Termination.'' ----------------- First Banks will provide to the holders of the Preferred Securities quarterly reports containing unaudited financial statements and annual reports containing financial statements audited by First Banks' independent auditors. First Banks will also furnish annual reports on Form 10-K and quarterly reports on Form 10-Q free of charge to holders of the Preferred Securities who so request in writing addressed to the Secretary of First Banks. ----------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE PREFERRED SECURITIES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 6 FIRST BANKS, INC. AND SUBSIDIARIES MAP OF LOCATIONS [MAP] METRO MISSOURI Arnold Bogey Hills Chesterfield Village Clayton Craig Creve Coeur Ellisville Florissant (2) Four Seasons Graham Gravois Hampton Kirkwood Lemay Manchester Riverview Shrewsbury St. Peters (2) Telegraph Tesson Ferry Town & Country Twin Oaks Warson Woods Webster Groves St. Charles REGIONAL MISSOURI Beaufort Bismarck Dutzow Fulton Gerald Hermann Lake Saint Louis Middletown Montgomery City Morrison Owensville Park Hills (2) Warrenton Washington Wentzville SOUTHERN ILLINOIS Belleville Breese Carbondale Chester (2) Columbia Fairview Heights Greenville Johnston City Lawrenceville (2) O'Fallon (2) Granite City Red Bud Salem (4) Valmeyer Vandalia Waterloo West Frankfort (2) CENTRAL & NORTHERN ILLINOIS Abingdon Avon Bartonville Bunker Hill Cambridge Canton Carlinville Chicago (2) Cuba Decatur Galesburg (2) Galva Havana Jacksonville Knoxville Mount Pulaski Peoria (4) Pittsfield Pleasant Hill Quincy (2) Rock Falls Roodhouse Springfield Sterling Winchester [MAP] CALIFORNIA FIRST BANK & TRUST Bellflower Bolsa Chica Huntington Beach Irvine IrvineCulver San Jose Santa Barbara Northside Santa Barbara Downtown Santa Maria Walnut Creek Bixby Knolls Fountain Valley Long Beach SUNRISE BANK OF CALIFORNIA Roseville Citrus Heights San Francisco FIRST COMMERCIAL BANK Campbell Concord Douglas Howe San Francisco Vernon TEXAS BANKTEXAS N.A. (Dallas) Abrams Irving-Las Colinas McKinney (Houston) Allen Parkway Northside Westheimer 7 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and Consolidated Financial Statements of First Banks, including the related notes, appearing elsewhere in this Prospectus. Unless otherwise indicated, the information in this Prospectus assumes that the Underwriters' over-allotment option will not be exercised. Prospective investors should carefully consider the information set forth under the heading ``Risk Factors.'' FIRST BANKS First Banks is a registered bank holding company headquartered in St. Louis County, Missouri. First Banks' principal business is the ownership and operation of its subsidiary banks and thrifts (the ``Subsidiary Banks''), which offer a broad range of commercial and personal banking services through its banking facilities located in Missouri, Illinois, California and Texas. Of these banking facilities, 27 are located in the St. Louis metropolitan area, which is First Banks' primary market area with a population of approximately 2.5 million. At September 30, 1996, First Banks had total assets of $3.5 billion, total loans of $2.7 billion, total deposits of $3.1 billion, and total shareholders' equity of $244 million. The principal executive office of First Banks is 135 North Meramec Avenue, St. Louis, Missouri 63105, and its telephone number is (314) 854-4600. First Banks has grown through a combination of acquisitions and internal growth. Prior to 1994, First Banks' acquisitions had been concentrated within its primary market area of eastern Missouri and southern Illinois. The premiums required to successfully pursue acquisitions escalated sharply in 1993, reducing dramatically the economic viability of many potential acquisitions in that area. Recognizing this, First Banks began to expand the geographic area in which it approached acquisition candidates. While First Banks was successful in making acquisitions in Chicago and northern Illinois, it became apparent that acquisition pricing, in Chicago and other areas being considered, was comparable to that of First Banks' primary acquisition area. As a result, while First Banks continued to pursue acquisitions within these areas, it turned much of its attention in 1994 and 1995 to institutions which could be acquired at more attractive prices which were within major metropolitan areas outside its immediate market area. This resulted in two acquisitions in Missouri, three in Illinois, one in Texas and seven in California during this period and the increase in total assets by 75% from December 31, 1993 to September 30, 1996. First Banks follows a policy of retaining earnings to support its growth. First Banks has never paid, and has no present intention to pay, dividends on its Common Stock and has, therefore, increased retained earnings by 37% since December 31, 1993.
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ----------------- ---------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- ---- (DOLLARS IN MILLIONS) Assets.................................. $3,546 3,700 3,623 2,880 2,032 2,047 1,996 Retained earnings....................... 164 153 157 138 120 102 85 Stockholders' equity.................... 244 230 235 217 202 181 111 Net income.............................. 11 20 24 24 23 19 17 Locations............................... 123 120 125 92 80 80 78
Through the 126 locations of its Subsidiary Banks, First Banks offers a broad range of commercial and personal banking services including certificate of deposit accounts, individual retirement and other time deposit accounts, checking and other demand deposit accounts, interest checking accounts, savings accounts, and money market accounts. Loans include commercial, financial, agricultural, municipal and industrial development, real estate construction and development, commercial and residential real estate, consumer and installment loans. Other financial services include mortgage banking, discount brokerage, credit-related insurance, automatic teller machines, safe deposit boxes, and trust services offered by certain Subsidiary Banks. First Banks' management philosophy is to centralize overall corporate policies, procedures, and administrative functions and to provide operational support functions for the Subsidiary Banks. Primary responsibility for managing the Subsidiary Banks rests with each of the officers and directors of the respective Subsidiary Banks. All of the voting stock of First Banks is owned by various trusts which were created by and are administered by and for the benefit of Mr. James F. Dierberg, Chairman of the Board, President and Chief Executive Officer of First Banks, and members of his immediate family. Mr. Dierberg, therefore, controls the management and policies of First 2 8 Banks and the election of its directors. See ``Risk Factors--Risk Factors Relating to First Banks--Control of First Banks.'' First Banks also has a class of non-voting preferred stock, the Class C 9.00% Increasing Rate, Redeemable, Cumulative Preferred Stock (the ``Class C Preferred Stock''), which is traded on The Nasdaq Stock Market's National Market under the symbol FBNKP. On December 1, 1997, the annual dividend rate on the Class C Preferred Stock will increase by 0.75% to 9.75% and, on such date, the Class C Preferred Stock will become redeemable by First Banks. FIRST CAPITAL First Capital is a statutory business trust formed under Delaware law pursuant to (i) a trust agreement, dated as of December 12, 1996, executed by First Banks, as depositor, and the trustees of First Capital (together with the Property Trustee, the ``Trustees''), and (ii) a certificate of trust filed with the Secretary of State of the State of Delaware on December 13, 1996. The initial trust agreement will be amended and restated in its entirety (as so amended and restated, the ``Trust Agreement'') substantially in the form filed as an exhibit to the Registration Statement of which this Prospectus forms a part. The Trust Agreement will be qualified as an indenture under the Trust Indenture Act of 1939, as amended (the ``Trust Indenture Act''). Upon issuance of the Preferred Securities, the purchasers thereof will own all of the Preferred Securities. First Banks will acquire all of the Common Securities which will represent an aggregate liquidation amount equal to at least 3% of the total capital of First Capital. 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 (as defined herein) under the Trust Agreement resulting from a Debenture Event of Default, the rights of First Banks 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 the Preferred Securities--Subordination of Common Securities.'' First Capital exists for the exclusive purposes of (i) issuing the Trust Securities representing undivided beneficial interests in the assets of First Capital, (ii) investing the gross proceeds of the Trust Securities in the Subordinated Debentures issued by First Banks, and (iii) engaging in only those other activities necessary, advisable, or incidental thereto. The Subordinated Debentures and payments thereunder will be the only assets of First Capital and payments under the Subordinated Debentures will be the only revenue of First Capital. First Capital has a term of 55 years, but may terminate earlier as provided in the Trust Agreement. The principal executive office of First Capital is 135 North Meramec Avenue, St. Louis, Missouri 63105, and its telephone number is (314) 854-4600. The number of Trustees will, pursuant to the Trust Agreement, initially be five. Three of the Trustees (the ``Administrative Trustees'') will be persons who are employees or officers of, or who are affiliated with, First Banks. The fourth trustee will be a financial institution that is unaffiliated with First Banks, which trustee will serve as institutional trustee under the Trust Agreement and as indenture trustee for the purposes of compliance with the provisions of the Trust Indenture Act (the ``Property Trustee''). State Street Bank and Trust Company, a Massachusetts banking corporation, will be the Property Trustee until removed or replaced by the holder of the Common Securities. For purposes of compliance with the provisions of the Trust Indenture Act, State Street Bank and Trust Company will also act as trustee (the ``Guarantee Trustee'') under the Guarantee and as Debenture Trustee (as defined herein) under the Indenture. The fifth trustee will be an entity that maintains its principal place of business in the State of Delaware (the ``Delaware Trustee''). Wilmington Trust Company, a Delaware chartered trust company, will act as Delaware Trustee. The Property Trustee will hold title to the Subordinated Debentures for the benefit of the holders of the Trust Securities and in such capacity will have the power to exercise all rights, powers and privileges under the Indenture. The Property Trustee will also maintain exclusive control of a segregated non-interest-bearing bank account (the ``Property Account'') to hold all payments made in respect of the Subordinated Debentures for the benefit of the holders of the Trust Securities. The Property Trustee will make payments of Distributions and payments on liquidation, redemption and otherwise to the holders of the Trust Securities out of funds from the Property Account. The Guarantee Trustee will hold the Guarantee for the benefit of the holders of the Preferred Securities. First Banks, as the holder of all the Common Securities, will have the right to appoint, remove or replace any Trustee and to increase or decrease the number of Trustees. First Banks will pay all fees and expenses related to First Capital and the offering of the Trust Securities. The rights of the holders of the Preferred Securities, including economic rights, rights to information and voting rights, are set forth in the Trust Agreement, the Delaware Business Trust Act (the ``Trust Act'') and the Trust Indenture Act. See ``Description of the Preferred Securities.'' 3 9 THE OFFERING Securities Offered................. 2,400,000 Preferred Securities having a Liquidation Amount of $25 per Preferred Security. The Preferred Securities represent preferred undivided beneficial interests in the assets of First Capital, which will consist solely of the Subordinated Debentures and payments thereunder. First Capital has granted the Underwriters an option, exercisable within 30 days after the date of this Prospectus, to purchase up to an additional 360,000 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 , 1997, 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 the Preferred Securities--Distributions--Payment of Distributions.'' Option to Extend Interest Payment Period........................... First Banks has the right, at any time, so long as no Debenture Event of Default has occurred and is continuing, to defer payments of interest on the Subordinated Debentures for a period not exceeding 20 consecutive quarters; provided, that no Extended Interest Payment Period may extend beyond the Stated Maturity of the Subordinated Debentures. As a consequence of the extension by First Banks of the interest payment period, quarterly Distributions on the Preferred Securities will be deferred (though such Distributions would continue to accrue with interest thereon compounded quarterly, since interest will continue to accrue and compound on the Subordinated Debentures) during any such Extended Interest Payment Period. During an Extended Interest Payment Period, First Banks 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 Extended Interest Payment Period and the payment of all amounts then due, First Banks may commence a new Ex- tended Interest Payment Period, subject to the foregoing requirements. See ``Description of the Preferred Securities--Distributions--Extended Interest Payment Period'' and ``Description of the Subordinated Deben- tures--Option to Extend Interest Payment Period.'' Should an Extended Interest Payment Period occur, holders of Preferred Securities will be required to include deferred interest income in their gross income for United States federal income tax purposes in advance of receipt of the cash distributions with respect to such deferred interest payments. See ``Certain Federal Income Tax Consequences--Potential Extension of Interest Payment Period and Original Issue Discount.'' Optional Redemption................ 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 under applicable capital guidelines or policies of the Federal Reserve, the Subordinated Debentures are redeemable prior to maturity at the option of First Banks (i) on or after March 31, 2002, in whole at any time or in part from time to time, or (ii) at any time, in whole (but not in part), within 180 days following the occurrence of a Tax Event or an Investment Company Event, in each case at the redemption price equal to 100% of 4 10 the principal amount of the Subordinated Debenture, together with any accrued but unpaid interest to the date fixed for redemption. See ``Description of the Subordinated Debentures--Redemption or Exchange.'' Distribution of Subordinated Debentures....................... First Banks 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 First Capital, subject to First Banks 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 the Preferred Securities--Redemption or Exchange'' and ``Description of the Preferred Securities--Liquidation Distribution Upon Termination.'' Guarantee.......................... First Banks 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 First Capital, as described herein. First Banks and First Capital believe that, taken together, the obligations of First Banks under the Guarantee, the Trust Agreement, the Subordinated Debentures, the Indenture and the Expense Agreement provide, in the aggregate, a full, irrevocable and unconditional guaranty, on a subordinated basis, of all of the obligations of First Capital under the Preferred Securities. The obligations of First Banks under the Guarantee and the Preferred Securities are subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of First Banks. If First Banks does not make principal or interest payments on the Subordinated Debentures, First Capital will not have sufficient funds to make distributions on the Preferred Securities; in which event, the Guarantee will not apply to such Distributions until First Capital has sufficient funds available therefor. See ``Description of the Guarantee.'' Voting Rights...................... The holders of the Preferred Securities generally will have no voting rights except in limited circumstances. See ``Description of the 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 First Capital to purchase the Subordinated Debentures issued by First Banks. First Banks intends to use the net proceeds from the sale of the Subordinated Debentures to, temporarily, reduce the amount of its indebtedness under the Credit Agreement (as defined herein), although First Banks expects the amount outstanding thereunder to increase in the future and to use any subsequent borrowings under the Credit Agreement for general corporate purposes, including the possible (i) repurchase or redemption of all or a portion of its outstanding Class C Preferred Stock (which becomes redeemable on December 1, 1997), (ii) funding of investments in, or extensions of credit to, its banking and nonbanking subsidiaries, (iii) acquisition of other financial institutions or their assets or liabilities, and (iv) acquisition of or investment in other businesses of a type eligible for bank holding companies. See ``Use of Proceeds.'' Nasdaq National Market Symbol...... Application has been made to have the Preferred Securities approved for quotation on The Nasdaq Stock Market's National Market under the symbol FBNKO.
5 11 SUMMARY CONSOLIDATED FINANCIAL DATA
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ------------------- ---------------------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA Interest income......... $ 197,008 192,051 261,621 162,435 140,012 161,303 178,714 Interest expense........ 106,580 106,350 144,945 70,760 58,058 79,529 106,848 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net interest income..... 90,428 85,701 116,676 91,765 81,954 81,774 71,866 Provision for possible loan losses........... 8,774 8,449 10,361 1,858 4,456 10,435 9,773 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net interest income after provision for possible loan losses................ 81,654 77,252 106,315 89,907 77,498 71,339 62,093 Noninterest income...... 15,798 17,642 19,407 13,634 9,953 11,140 12,742 Noninterest expense..... 81,237 66,701 91,566 67,734 53,431 53,953 49,088 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income before provision for income taxes, minority interest in (income) loss of subsidiary and cumulative effect of change in accounting principle............. 16,215 28,193 34,156 35,807 34,020 28,526 25,747 Provision for income taxes................. 4,304 9,414 11,038 12,012 11,592 9,510 9,039 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income before minority interest in (income) loss of subsidiary and cumulative effect of change in accounting principle............. 11,911 18,779 23,118 23,795 22,428 19,016 16,708 Minority interest in (income) loss of subsidiary............ (472) 816 1,353 237 -- -- -- Cumulative effect of change in accounting principle............. -- -- -- -- 766 -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income.............. $ 11,439 19,595 24,471 24,032 23,194 19,016 16,708 ========== ========== ========== ========== ========== ========== ========== DIVIDENDS Preferred stock......... $ 4,237 4,237 5,736 5,735 5,766 1,951 906 Common stock............ -- -- -- -- -- -- -- Ratio of total dividends declared to net income................ 37.04% 21.62% 23.44% 23.86% 24.86% 10.26% 5.42% PER SHARE DATA Earnings per common share: Primary............. 304.39 649.08 791.82 773.31 741.69 719.51 682.75 Fully diluted....... 302.68 617.39 758.66 734.80 690.43 656.54 608.65 Weighted average shares of common stock outstanding........... 23,661 23,661 23,661 23,661 23,498 23,144 23,144 BALANCE SHEET DATA (AT PERIOD-END) Investment securities... $ 498,785 579,079 508,323 587,878 531,148 518,525 443,057 Loans, net of unearned discount.............. 2,733,026 2,748,715 2,744,219 2,073,570 1,362,018 1,371,417 1,409,067 Total assets............ 3,546,154 3,699,961 3,622,962 2,879,570 2,031,909 2,047,022 1,996,459 Total deposits.......... 3,054,741 3,170,652 3,183,691 2,333,144 1,779,389 1,768,225 1,753,422 Notes payable........... 66,840 89,146 88,135 46,203 -- 30,038 34,630 Common stockholders' equity................ 175,754 162,079 166,542 149,249 133,781 110,751 95,970 Total stockholders' equity................ 243,592 230,142 234,605 217,312 201,844 180,814 111,033 EARNINGS RATIOS Return on average total assets............ 0.43% 0.76% 0.70% 1.00% 1.16% 0.95% 0.85% Return on average total stockholders' equity............ 6.40 11.61 10.79 11.48 12.27 14.13 16.13 ASSET QUALITY RATIOS Allowance for possible loan losses to loans................. 1.66 1.86 1.92 1.37 1.69 1.52 1.37 Nonperforming loans to loans............. 1.22 1.43 1.44 0.78 0.90 0.81 0.74 Allowance for possible loan losses to nonperforming loans............. 135.86 129.39 133.70 175.37 188.50 188.43 185.30 Nonperforming assets to loans and foreclosed assets............ 1.59 1.74 1.71 1.10 1.08 1.31 1.59 Net loan charge-offs to average loans..... 0.79 0.50 0.41 0.09 0.33 0.65 0.47 CAPITAL RATIOS Average total stockholders' equity to average total assets................ 6.76 6.55 6.49 8.70 9.46 6.70 5.26 Total risk-based capital ratio................. 9.56 9.67 9.34 12.68 16.90 14.71 10.20 Leverage ratio.......... 6.13 5.60 5.32 7.54 9.30 7.66 5.26 RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Including interest on deposits.............. 1.11 1.21 1.18 1.39 1.44 1.32 1.22 Excluding interest on deposits.............. 1.58 1.80 1.75 3.24 4.65 4.55 4.47 - ---------- The comparability of the selected data presented is affected by First Banks' acquisition of nine banks and six thrifts during the periods presented. The acquisitions were accounted for as purchases and, therefore, the selected data includes the financial position and results of operations of each acquired entity only for the periods subsequent to its date of acquisition. See ``Management's Discussion and Analysis--Acquisitions.'' Ratios for the nine-month periods are annualized. Nonperforming loans consist of nonaccrual loans and loans with restructured terms. Nonperforming assets consist of nonperforming loans and foreclosed assets. For purposes of calculating the ratio of earnings to combined fixed charges and preferred stock dividends, earnings consist of income before taxes plus interest and rent expense. Fixed charges consist of interest and rent expense.
6 12 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 First Banks and its business and First Capital before purchasing the Preferred Securities offered hereby. Prospective investors should note, in particular, that this Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the ``Securities Act''), and Section 21E of the Securities Act of 1934, as amended (the ``Exchange Act''), and that actual results could differ materially from those contemplated by such statements. The considerations listed below represent certain important factors First Banks 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 First Banks and First Capital. It should be recognized that other risks may be significant, presently or in the future, and the risks set forth below may affect First Banks and First 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 First Banks under the Guarantee issued 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, Subordinated Debt and Additional Senior Obligations of First Banks. At September 30, 1996, the aggregate outstanding Senior Debt, Subordinated Debt and Additional Senior Obligations of First Banks was approximately $66.8 million. Because First Banks is a holding company, the right of First Banks to participate in any distribution of assets of any Subsidiary Bank upon such Subsidiary 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 Subsidiary Bank, except to the extent that First Banks may itself be recognized as a creditor of that Subsidiary Bank. The Subordinated Debentures, therefore, will be effectively subordinated to all existing and future liabilities of the Subsidiary Banks and holders of Subordinated Debentures and Preferred Securities should look only to the assets of First Banks 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 First Banks. See ``Description of the Guarantee--Status of the Guarantee'' and ``Description of the Subordinated Debentures--Subordination.'' The ability of First Capital to pay amounts due on the Preferred Securities is solely dependent upon First Banks making payments on the Subordinated Debentures as and when required. OPTION TO EXTEND INTEREST PAYMENT PERIOD; TAX CONSEQUENCES; MARKET PRICE CONSEQUENCES First Banks has the right under the Indenture, so long as no Debenture Event of Default has occurred and is continuing, 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 Extended Interest Payment Period; provided that no Extended Interest Payment 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 First 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 Extended Interest Payment Period. During any such Extended Interest Payment Period, First Banks may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of First Banks' capital stock (other than the reclassification of any class of First Banks' capital stock into another class of capital stock or the conversion of the Class A Preferred Stock (as defined herein) into Common Stock (as defined herein)), (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of First Banks that rank pari passu with or junior in interest to the Subordinated Debentures or make any guarantee payments with respect to any guarantee by First Banks of the debt securities of any subsidiary of First Banks if such guarantee ranks pari passu with or junior in interest to the Subordinated Debentures (other than payments under the Guarantee), or (iii) redeem, purchase or acquire less than all of the Subordinated Debentures or any of the Preferred Securities. Prior to the termination of any such Extended Interest Payment Period, First Banks may further defer the payment of interest; provided that no 7 13 Extended Interest Payment Period may exceed 20 consecutive quarters or extend beyond the Stated Maturity of the Subordinated Debentures. Upon the termination of any Extended Interest Payment 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), First Banks may elect to begin a new Extended Interest Payment Period, subject to the above requirements. Subject to the foregoing, there is no limitation on the number of times that First Banks may elect to begin an Extended Interest Payment Period. See ``Description of the Preferred Securities--Distributions--Extended Interest Payment Period'' and ``Description of the Subordinated Debentures--Option to Extend Interest Payment Period.'' Should an Extended Interest Payment Period occur, each 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 First Capital for United States federal income tax purposes. A holder of Preferred Securities must, as a result, 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 First 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.'' First Banks has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Subordinated Debentures. Should First Banks elect, however, 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 Extended Interest Payment Period, therefore, might not receive the same return on its investment as a holder that continues to hold its Preferred Securities. As a result of the existence of First Banks' 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 First Banks has the right to redeem the Subordinated Debentures in whole (but not in part) within 180 days following the occurrence of a Tax Event or Investment Company Event (whether occurring before or after March 31, 2002), and, therefore, cause a mandatory redemption of the Preferred Securities. The exercise of such right is subject to First Banks having received prior approval of the Federal Reserve to do so if then required under applicable capital guidelines or policies of the Federal Reserve. ``Tax Event'' means the receipt by First 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) First 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 First Banks on the Subordinated Debentures is not, or, within 90 days of such opinion, will not be, deductible by First Banks, in whole or in part, for United States federal income tax purposes, or (iii) First 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. First Banks must request and receive an opinion with regard to such matters within a reasonable period of time after it becomes aware of the possible occurrence of any of the events described in clauses (i) through (iii) above. ``Investment Company Event'' means the receipt by First 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 interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, First Capital is or will be considered an ``investment company'' that is required to be registered under the Investment Company Act of 1940, as amended (the ``Investment Company Act''), which change becomes effective on or after the date of original issuance of the Preferred Securities. 8 14 See ``--Risk Factors Relating to the Preferred Securities--Proposed Tax Legislation'' for a discussion of certain legislative proposals that, if adopted, could give rise to a Tax Event, which may permit First Banks to cause a redemption of the Preferred Securities prior to March 31, 2002. SHORTENING OR EXTENSION OF STATED MATURITY OF SUBORDINATED DEBENTURES First Banks has the right, at any time, to shorten the maturity of the Subordinated Debentures to a date not earlier than March 31, 2002. The exercise of such right is subject to First Banks having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. First Banks also has the right to extend the maturity of the Subordinated Debentures (whether or not First Capital is terminated and the Subordinated Debentures are distributed to holders of the Preferred Securities) to a date no later than March 31, 2046, the 49th anniversary of the initial issuance of the Preferred Securities. Such right may only be exercised, however, if at the time such election is made and at the time of such extension (i) First Banks is not in bankruptcy, otherwise insolvent or in liquidation, (ii) First Banks is not in default in the payment of any interest or principal on the Subordinated Debentures, (iii) First Capital is not in arrears on payments of Distributions on the Preferred Securities and no deferred Distributions are accumulated, and (iv) First Banks has a Senior Debt rating of investment grade. See ``Description of the Subordinated Debentures--General.'' RIGHTS UNDER THE GUARANTEE The Guarantee guarantees to the holders of the Preferred Securities, to the extent not paid by First Capital, (i) any accrued and unpaid Distributions required to be paid on the Preferred Securities, to the extent that First Capital has funds available therefor at such time, (ii) the Redemption Price (as defined herein) with respect to any Preferred Securities called for redemption, to the extent that First Capital has funds available therefor at such time, and (iii) upon a voluntary or involuntary dissolution, winding-up or liquidation of First Capital (other than in connection with the distribution of Subordinated Debentures to the holders of Preferred Securities or a redemption of all of the Preferred Securities), the lesser of (a) the amount of the Liquidation Distribution (as defined herein), to the extent First Capital has funds available therefor at such time, and (b) the amount of assets of First Capital remaining available for distribution to holders of the Preferred Securities in liquidation of First Capital. The holders of not less than a majority in Liquidation Amount of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of 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 First Banks to enforce its rights under the Guarantee without first instituting a legal proceeding against First Capital, the Guarantee Trustee or any other Person (as defined in the Guarantee). If First Banks were to default on its obligation to pay amounts payable under the Subordinated Debentures, First 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. In the event, however, that a Debenture Event of Default has occurred and is continuing and such event is attributable to the failure of First Banks 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 First Banks 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''). The exercise by First Banks of its right, as described herein, to defer the payment of interest on the Subordinated Debentures does not constitute a Debenture Event of Default. In connection with such Direct Action, First Banks will have a right of set-off under the Indenture to the extent of any payment made by First Banks 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 the Subordinated Debentures--Enforcement of Certain Rights by Holders of Preferred Securities,'' ``Description of the Subordinated Debentures--Debenture Events of Default'' and ``Description of the Guarantee.'' The Trust Agreement provides that each holder of Preferred Securities by acceptance thereof agrees to the provisions of the Guarantee and the Indenture. 9 15 NO VOTING RIGHTS EXCEPT IN LIMITED CIRCUMSTANCES Holders of Preferred Securities will have no voting rights except in limited circumstances relating only to the modification of the Preferred Securities and the exercise of the rights of First Capital as holder of the 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, as 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 First Banks may amend the Trust Agreement without the consent of holders of Preferred Securities to ensure that First 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 the Preferred Securities--Voting Rights; Amendment of Trust Agreement'' and ``Description of the Preferred Securities--Removal of First Capital Trustees.'' PROPOSED TAX LEGISLATION On March 19, 1996, President Clinton proposed certain tax law changes that would, among other things, generally deny corporate issuers a deduction for interest in respect of certain debt obligations issued on or after December 7, 1995 (the ``Proposed Legislation'') if such debt obligations have a maximum term in excess of 20 years and are not shown as indebtedness on the issuer's applicable consolidated balance sheet. On March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and House Ways and Means Committee Chairman Bill Archer issued a joint statement (the ``Joint Statement'') indicating their intent that certain legislative proposals initiated by the Clinton administration, including the Proposed Legislation, that may be adopted by either of the tax-writing committees of Congress would have an effective date that is no earlier than the date of ``appropriate Congressional action.'' In addition, subsequent to the publication of the Joint Statement, Senator Daniel Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel wrote letters to Treasury Department officials concurring with the views expressed in the Joint Statement (the ``Democrat Letters''). Based upon the Joint Statement and the Democrat Letters, it is expected that if the Proposed Legislation were to be enacted, such legislation would not apply to the Subordinated Debentures. There can be no assurances, however, that the effective date guidance contained in the Joint Statement and the Democrat Letters will be incorporated into the Proposed Legislation, if enacted, or that other legislation enacted after the date hereof will not otherwise adversely affect the ability of First Banks to deduct the interest payable on the Subordinated Debentures. There can, therefore, be no assurance that a Tax Event will not occur. A Tax Event would permit First Banks, 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, March 31, 2002. See ``Description of the Subordinated Debentures--Redemption or Exchange--Tax Event Redemption or Investment Company Event Redemption'' and ``Certain Federal Income Tax Consequences--Effect of Proposed Changes in Tax Laws.'' REDEMPTION; EXCHANGE OF PREFERRED SECURITIES FOR SUBORDINATED DEBENTURES First Banks has the right at any time to dissolve, wind-up or terminate First Capital and cause the Subordinated Debentures to be distributed to the holders of the Preferred Securities in exchange therefor in liquidation of First Capital. The exercise of such right is subject to First Banks having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. First Banks will have the right, in certain circumstances, to redeem the Subordinated Debentures in whole or in part, in lieu of a distribution of the Subordinated Debentures by First Capital, in which event First Capital will redeem the Trust Securities on a pro rata basis to the same extent as the Subordinated Debentures are redeemed by First Banks. Any such distribution or redemption prior to the Stated Maturity will be subject to prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. See ``Description of the Preferred Securities--Redemption or Exchange--Tax Event Redemption or Investment Company Event Redemption.'' Under current United States federal income tax law, a distribution of Subordinated Debentures upon the dissolution of First Capital would not be a taxable event to holders of the Preferred Securities. If, however, First Capital is characterized as an association taxable as a corporation at the time of the dissolution of First Capital, the distribution of the Subordinated Debentures may constitute a taxable event to holders of Preferred Securities. Moreover, upon occurrence of a Tax Event, a dissolution of First Capital in which holders of the Preferred Securities 10 16 receive cash may be a taxable event to such holders. See ``Certain Federal Income Tax Consequences--Receipt of Subordinated Debentures or Cash Upon Liquidation of First Capital.'' 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 upon a dissolution or liquidation of First Capital. The Preferred Securities or the Subordinated Debentures, may, therefore, trade at a discount to the price that the investor paid to purchase the Preferred Securities offered hereby. Because holders of Preferred Securities may receive Subordinated Debentures, 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. If the Subordinated Debentures are distributed to the holders of Preferred Securities upon the liquidation of First Capital, First Banks will use its best efforts to list the Subordinated Debentures on The Nasdaq Stock Market's National Market or such stock exchanges, if any, on which the Preferred Securities are then listed. TRADING PRICE; ABSENCE OF PRIOR PUBLIC MARKET FOR THE 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 First 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 its pro rata share of the underlying Subordinated Debentures deemed 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 all 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--Disposition of Preferred Securities.'' There is no current public market for the Preferred Securities. Although application has been made to approve the Preferred Securities for quotation on The Nasdaq Stock Market's National Market, there can be no assurance that an active public market will develop for the Preferred Securities or that, if such market develops, the market price will equal or exceed the public offering price set forth on the cover page of this Prospectus. The public offering price for the Preferred Securities has been determined through negotiations between First Banks and the Underwriters. Prices for the Preferred Securities will be determined in the marketplace and may be influenced by many factors, including prevailing interest rates, the liquidity of the market for the Preferred Securities, investor perceptions of First Banks and general industry and economic conditions. PREFERRED SECURITIES ARE NOT INSURED The Preferred Securities are not insured by the Bank Insurance Fund (the ``BIF'') or the Savings Association Insurance Fund (the ``SAIF'') of the Federal Deposit Insurance Corporation (the ``FDIC'') or by any other governmental agency. RISK FACTORS RELATING TO FIRST BANKS IMPACT OF INTEREST RATE CHANGES First Banks' results of operations are derived from the operations of the Subsidiary 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 bank holding companies and financial institutions, First Banks' 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--General,'' ``--Net Interest Income'' and ``--Interest Rate Risk Management.'' 11 17 CREDIT RISKS First Banks, as a financial institution, is exposed to the risk that customers to whom the Subsidiary 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 First Banks' operating results. See ``Management's Discussion and Analysis--General'' and ``--Loans and Allowances for Possible Loan Losses.'' GOVERNMENT REGULATION Banking organizations are subject to extensive federal and state regulation and supervision. These regulations and laws are primarily intended to protect depositors and the FDIC, not shareholders or other creditors. Regulations and laws affecting the financial institutions industry are undergoing continuous change, and the ultimate effect of such changes cannot be predicted. Regulations and laws affecting First Banks and the Subsidiary 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 First Banks and the Subsidiary Banks or benefit competing entities which may not be subject to the same regulation and supervision. See ``Supervision and Regulation--Recent and Pending Legislation.'' COMPETITION The banking business is highly competitive. The Subsidiary 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 First Banks and the Subsidiary Banks and offer certain services that First Banks and the Subsidiary Banks do not currently provide. Such competitors may also have greater lending limits than the Subsidiary 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. Non-bank competitors are also generally not subject to the extensive regulations applicable to First Banks and the Subsidiary Banks. See ``Business--Competition and Branch Banking'' and ``Supervision and Regulation--Recent and Pending Legislation.'' DIVIDENDS FROM SUBSIDIARY BANKS The ability of First Banks to pay interest on the Subordinated Debentures is largely dependent on its receipt of dividends from the Subsidiary Banks. The amount of dividends that the Subsidiary Banks may pay to First Banks is limited by various state and federal laws and by the regulations promulgated by their respective primary regulators, which impose certain minimum capital requirements. The amount of dividends that the Subsidiary Banks may pay to First Banks is also limited by the provisions of the Credit Agreement, which imposes certain minimum capital requirements. Under the most restrictive of these requirements, the future payment of dividends to First Banks from the Subsidiary Banks is limited, as of September 30, 1996, to approximately $37.8 million, unless permission of the regulatory authorities and, if necessary, the lead bank for the lenders is obtained. See ``Supervision and Regulation--Bank and Bank Holding Company Regulation--Dividends.'' CONTROL OF FIRST BANKS All of the voting stock of First Banks is owned by various trusts which were created by and are administered by and for the benefit of Mr. James F. Dierberg, Chairman of the Board, President and Chief Executive Officer of First Banks, and members of his immediate family. Mr. Dierberg, therefore, controls the management and policies of First Banks and the election of its directors by and through these trusts. The Class C Preferred Stock of First Banks has no voting rights, except as required by law in certain limited situations and except for the ability to elect two directors if First Banks fails to pay dividends on such stock for six quarterly dividend periods. See ``Description of Other Capital Stock.'' POTENTIAL LIABILITY FOR UNDERCAPITALIZED SUBSIDIARY BANK; CROSS GUARANTEE Under federal law, a bank holding company may be required to guarantee a capital plan filed by an undercapitalized bank or thrift subsidiary with its primary regulator. If the subsidiary defaults under the plan, the holding company 12 18 may be required to contribute to the capital of the subsidiary bank an amount equal to the lesser of 5% of the bank's assets at the time it became undercapitalized or the amount necessary to bring the bank into compliance with applicable capital standards. It is, therefore, possible that First Banks would be required to contribute capital to one or more of the Subsidiary Banks or any other bank that it may acquire in the event that one or more of the Subsidiary Banks or such other bank becomes undercapitalized. As described under ``Management's Discussion and Analysis--Capital,'' for these purposes, First Banks and each of its Subsidiary Banks have, as of September 30, 1996, capital in excess of the requirements for a ``well-capitalized'' institution. A bank insured by the FDIC may also be liable for costs incurred by the FDIC as a result of the failure or near failure of another FDIC-insured bank under common control with the bank. See ``Supervision and Regulation--Recent and Pending Legislation.'' FIRST BANKS First Banks, incorporated in Missouri in 1978, is headquartered in St. Louis, Missouri and is a registered bank holding company under the Bank Holding Company Act of 1956, as amended (the ``BHCA''). First Banks' wholly-owned Subsidiary Banks are First Bank, headquartered in St. Louis County, Missouri (``First Bank (Missouri)''), First Bank, headquartered in O'Fallon, Illinois (``First Bank (Illinois)''), and First Bank FSB, headquartered in St. Louis County, Missouri (``First Bank FSB''). First Banks' wholly-owned bank holding company subsidiary is CCB Bancorp, Inc., headquartered in Irvine, California (``CCB''). CCB's wholly-owned subsidiary is First Bank & Trust, headquartered in Irvine, California (``FB&T''). First Banks' majority-owned bank holding company subsidiaries are First Banks America, Inc., headquartered in Houston, Texas (``FBA''), in which First Banks holds a 67.30% equity interest, and First Commercial Bancorp, Inc., headquartered in Sacramento, California (``FCB''), in which First Banks holds a 61.46% equity interest (excluding the effect of the conversion of certain debentures owned by First Banks). FCB owns all of the capital stock of First Commercial Bank, headquartered in Sacramento, California (``First Commercial''). FBA, through its wholly-owned subsidiary, owns all of the capital stock of BankTEXAS, N.A., headquartered in Houston, Texas (``BTX''), and Sunrise Bank of California, headquartered in Roseville, California (``Sunrise''), which was acquired on November 1, 1996. First Bank (Missouri), First Bank (Illinois), First Bank FSB, FB&T, First Commercial, BTX and Sunrise are referred to herein as the ``Subsidiary Banks.'' The voting stock of First Banks is owned by various trusts which were created by and are administered by and for the benefit of Mr. James F. Dierberg, Chairman of the Board, President and Chief Executive Officer of First Banks, and members of his immediate family. Mr. Dierberg, therefore, controls the management and policies of First Banks and the election of its directors. First Banks also has a class of non-voting preferred stock, the Class C Preferred Stock, which is traded on The Nasdaq Stock Market's National Market under the symbol FBNKP. First Banks' principal executive office is located at 135 North Meramec Avenue, Clayton, Missouri 63105, and its telephone number is (314) 854-4600. USE OF PROCEEDS First Capital will use the gross proceeds received from the sale of the Preferred Securities to purchase Subordinated Debentures from First Banks. First Banks intends to use the net proceeds from the sale of the Subordinated Debentures to, temporarily, reduce the amount of its indebtedness under the Credit Agreement, although First Banks expects the amount outstanding thereunder to increase in the future and to use any subsequent borrowings under the Credit Agreement (see ``Capitalization'') for general corporate purposes, including the possible (i) repurchase or redemption of all or a portion of its outstanding Class C Preferred Stock (which becomes redeemable on December 1, 1997), (ii) funding of investments in, or extensions of credit to, its banking and nonbanking subsidiaries, (iii) acquisition of other financial institutions or their assets or liabilities, and (iv) acquisition of or investment in other businesses of a type eligible for bank holding companies. First Banks may, from time to time, engage in additional capital financings of a character and in amounts to be determined by First Banks in light of its needs at such time or times and in light of prevailing market conditions. The Credit Agreement, which is among First Banks and The Boatmen's National Bank of St. Louis, as lender and agent, and various other unaffiliated financial institutions, includes a $50 million term loan and a $40 million revolving line of credit to be used for acquisitions and other corporate requirements. The obligations of First Banks under the Credit Agreement are secured by the stock of the wholly-owned Subsidiary Banks and the stock First 13 19 Banks owns in any intermediate bank holding company. The term loan requires quarterly principal payments of $2.5 million and matures on July 12, 2000. The revolving line of credit matures on July 11, 1997, subject to annual renewal. The interest rate for the term loan is the agent bank's corporate base rate or, at the option of First Banks, the London Inter-Bank Offered Rate (``LIBOR'') plus 1.5%, and the interest rate for the revolving line of credit is the agent bank's corporate base rate or, at the option of First Banks, LIBOR plus 1.25%. At September 30, 1996, $47.5 million was outstanding under the term loan portion of the Credit Agreement and $18.0 million was outstanding under the revolving line of credit portion of the Credit Agreement. At December 19, 1996, $45.0 million was outstanding under the term loan portion of the Credit Agreement and $30.0 million was outstanding under the revolving line of credit portion of the Credit Agreement. MARKET FOR THE PREFERRED SECURITIES Application has been made to have the Preferred Securities approved for quotation on The Nasdaq Stock Market's National Market under the symbol FBNKO. Although the Underwriters have informed First Banks that they presently intend to make a market in the Preferred Securities, there can be no assurance 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 First Banks and the Underwriters, and the offering price of the Preferred Securities may not be indicative of the market price following the offering. See ``Underwriting.'' ACCOUNTING TREATMENT First Capital will be treated, for financial reporting purposes, as a subsidiary of First Banks and, accordingly, the accounts of First Capital will be included in the consolidated financial statements of First Banks. The Preferred Securities will be presented as a separate line item in the consolidated balance sheet of First Banks 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. First Banks will record Distributions payable on the Preferred Securities as an expense in the consolidated statements of operations for financial reporting purposes. All future reports of First Banks filed under the Exchange Act will (a) present the Trust Securities issued by First Capital on the balance sheet as a separate line-item entitled ``Guaranteed preferred beneficial interests Company's subordinated debentures,'' (b) include in a footnote to the financial statements disclosure that the sole assets of First 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 First Banks owns all of the Common Securities of First Capital, the sole assets of First Capital are the Subordinated Debentures, and the back-up obligations, in the aggregate, constitute a full and unconditional guarantee by First Banks of the obligations of First Capital under the Preferred Securities. 14 20 CAPITALIZATION The following table sets forth (i) the consolidated capitalization of First Banks at September 30, 1996 and (ii) the consolidated capitalization of First Banks giving effect to the issuance of the Preferred Securities hereby offered by First Capital and receipt by First Banks of the net proceeds from the corresponding sale of the Subordinated Debentures to First Capital, as if the sale of the Preferred Securities had been consummated on September 30, 1996, and assuming the Underwriters' over-allotment option was not exercised.
SEPTEMBER 30, 1996 ------------------------- ACTUAL AS ADJUSTED ------ ----------- (DOLLARS IN THOUSANDS) LONG-TERM DEBT: Notes payable......................................................................... $ 66,840 9,390 -------- ------- GUARANTEED PREFERRED BENEFICIAL INTERESTS IN FIRST BANKS' SUBORDINATED DEBENTURES: Guaranteed preferred beneficial interests in First Banks' subordinated debentures...................................................................... -- 60,000 Less expenses relating to the issuance of the Preferred Securities................ -- (2,550) -------- ------- Net proceeds from the sale of guaranteed preferred beneficial interests in First Banks' subordinated debentures....................................... -- 57,450 -------- ------- STOCKHOLDERS' EQUITY: Preferred stock: Class C 9.00%, increasing rate, redeemable, cumulative, $1.00 par value, $25.00 stated value; 5,000,000 shares authorized; 2,191,000 shares issued and outstanding as of September 30, 1996............................................ 54,775 54,775 Class A convertible, adjustable rate, $20.00 par value; 750,000 shares authorized, 641,082 shares issued and outstanding........................................... 12,822 12,822 Class B adjustable rate, $1.50 par value; 200,000 shares authorized; 160,505 shares issued and outstanding................................................... 241 241 Common stock, $250.00 par value; 25,000 shares authorized; 23,661 shares issued and outstanding.......................................................................... 5,915 5,915 Capital surplus....................................................................... 4,237 4,237 Retained earnings..................................................................... 163,894 163,894 Net fair value adjustment for securities available for sale........................... 1,708 1,708 -------- ------- Total stockholders' equity.................................................... 243,592 243,592 -------- ------- Total capitalization.......................................................... $310,432 310,432 ======== ======= CAPITAL RATIOS: Stockholders' equity to total assets.................................................. 6.87% 6.87% Leverage ratio............................................................ 6.13 6.13 Risk-based capital ratios: Tier 1 capital to risk-weighted assets............................................ 8.23 8.23 Total risk-based capital to risk-weighted assets.................................. 9.56 11.80 - -------- Reflects the temporary reduction of indebtedness under the Credit Agreement. See ``Use of Proceeds.'' The leverage ratio is Tier 1 capital divided by average quarterly assets, after deducting intangible assets and net deferred tax assets in excess of regulatory maximum limits. See ``Management's Discussion and Analysis-- Capital.'' 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. Federal Reserve guidelines for calculation of Tier 1 capital to risk-weighted assets limits the amount of cumulative preferred stock which can be included in Tier 1 capital to 25% of other Tier 1 capital. The Class C Preferred Stock currently outstanding exceeds this limitation. The Preferred Securities, although eligible for treatment as Tier 1 capital under current Federal Reserve guidelines, will not increase First Banks' Tier 1 capital until either the other components of First Banks' Tier 1 capital increase or the Class C Preferred Stock outstanding decreases sufficiently to satisfy the foregoing limitation.
15 21 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 First Banks. 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 First Banks, 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.''
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ------------------- ---------------------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- ---- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) INCOME STATEMENT DATA Interest income......... $ 197,008 192,051 261,621 162,435 140,012 161,303 178,714 Interest expense........ 106,580 106,350 144,945 70,760 58,058 79,529 106,848 ---------- --------- --------- --------- --------- --------- --------- Net interest income..... 90,428 85,701 116,676 91,765 81,954 81,774 71,866 Provision for possible loan losses........... 8,774 8,449 10,361 1,858 4,456 10,435 9,773 ---------- --------- --------- --------- --------- --------- --------- Net interest income after provision for possible loan losses................ 81,654 77,252 106,315 89,907 77,498 71,339 62,093 Noninterest income...... 15,798 17,642 19,407 13,634 9,953 11,140 12,742 Noninterest expense..... 81,237 66,701 91,566 67,734 53,431 53,953 49,088 ---------- --------- --------- --------- --------- --------- --------- Income before provision for income taxes, minority interest in (income) loss of subsidiary and cumulative effect of change in accounting principle............. 16,215 28,193 34,156 35,807 34,020 28,526 25,747 Provision for income taxes................. 4,304 9,414 11,038 12,012 11,592 9,510 9,039 ---------- --------- --------- --------- --------- --------- --------- Income before minority interest in (income) loss of subsidiary and cumulative effect of change in accounting principle............. 11,911 18,779 23,118 23,795 22,428 19,016 16,708 Minority interest in (income) loss of subsidiary............ (472) 816 1,353 237 -- -- -- Cumulative effect of change in accounting principle............. -- -- -- -- 766 -- -- ---------- --------- --------- --------- --------- --------- --------- Net income.............. $ 11,439 19,595 24,471 24,032 23,194 19,016 16,708 ========== ========= ========= ========= ========= ========= ========= DIVIDENDS Preferred stock......... $ 4,237 4,237 5,736 5,735 5,766 1,951 906 Common stock............ -- -- -- -- -- -- -- Ratio of total dividends declared to net income................ 37.04% 21.62% 23.44% 23.86% 24.86% 10.26% 5.42% PER SHARE DATA Earnings per common share: Primary............. 304.39 649.08 791.82 773.31 741.69 719.51 682.75 Fully diluted....... 302.68 617.39 758.66 734.80 690.43 656.54 608.65 Weighted average shares of common stock outstanding........... 23,661 23,661 23,661 23,661 23,498 23,144 23,144 BALANCE SHEET DATA (AT PERIOD-END) Investment securities... $ 498,785 579,079 508,323 587,878 531,148 518,525 443,057 Loans, net of unearned discount.............. 2,733,026 2,748,715 2,744,219 2,073,570 1,362,018 1,371,417 1,409,067 Total assets............ 3,546,154 3,699,961 3,622,962 2,879,570 2,031,909 2,047,022 1,996,459 Total deposits.......... 3,054,741 3,170,652 3,183,691 2,333,144 1,779,389 1,768,225 1,753,422 Notes payable........... 66,840 89,146 88,135 46,203 -- 30,038 34,630 Common stockholders' equity................ 175,754 162,079 166,542 149,249 133,781 110,751 95,970 Total stockholders' equity................ 243,592 230,142 234,605 217,312 201,844 180,814 111,033 EARNINGS RATIOS Return on average total assets............ 0.43% 0.76% 0.70% 1.00% 1.16% 0.95% 0.85% Return on average total stockholders' equity............ 6.40 11.61 10.79 11.48 12.27 14.13 16.13 ASSET QUALITY RATIOS Allowance for possible loan losses to loans................. 1.66 1.86 1.92 1.37 1.69 1.52 1.37 Nonperforming loans to loans............. 1.22 1.43 1.44 0.78 0.90 0.81 0.74 Allowance for possible loan losses to nonperforming loans............. 135.86 129.39 133.70 175.37 188.50 188.43 185.30 Nonperforming assets to loans and foreclosed assets............ 1.59 1.74 1.71 1.10 1.08 1.31 1.59 Net loan charge-offs to average loans..... 0.79 0.50 0.41 0.09 0.33 0.65 0.47 CAPITAL RATIOS Average total stockholders' equity to average total assets................ 6.76 6.55 6.49 8.70 9.46 6.70 5.26 Total risk-based capital ratio................. 9.56 9.67 9.34 12.68 16.90 14.71 10.20 Leverage ratio.......... 6.13 5.60 5.32 7.54 9.30 7.66 5.26 Ratio of earnings to combined fixed charges and preferred stock dividends: Including interest on deposits........ 1.11 1.21 1.18 1.39 1.44 1.32 1.22 Excluding interest on deposits........ 1.58 1.80 1.75 3.24 4.65 4.55 4.47 - ---------- The comparability of the selected data presented is affected by First Banks' acquisition of nine banks and six thrifts during the periods presented. The acquisitions were accounted for as purchases and, therefore, the selected data includes the financial position and results of operations of each acquired entity only for the periods subsequent to its date of acquisition. See ``Management's Discussion and Analysis--Acquisitions.'' Ratios for the nine-month periods are annualized. Nonperforming loans consist of nonaccrual loans and loans with restructured terms. Nonperforming assets consist of nonperforming loans and foreclosed assets. For purposes of calculating the ratio of earnings to combined fixed charges and preferred stock dividends, earnings consist of income before taxes plus interest and rent expense. Fixed charges consist of interest and rent expense.
16 22 MANAGEMENT'S DISCUSSION AND ANALYSIS Management's Discussion and Analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. 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 First Banks expanded rapidly through acquisitions during the years ended December 31, 1994 and 1995. Total assets increased from $2.03 billion on January 1, 1994 to $3.62 billion on December 31, 1995, an increase of 78.3%. First Banks' net income for these periods was, however, adversely affected by expenses resulting from the amalgamation of those acquisitions into its systems and operating culture, as well as certain other non-recurring items. Consequently, net income of First Banks was $11.4 million for the nine months ended September 30, 1996, compared with $19.6 million for the same period in 1995. For the year ended December 31, 1995, net income was $24.5 million, compared with $24.0 million for the year 1994. This represents a return on average assets of .43% and .76% for the nine months ended September 30, 1996 and 1995, respectively. This compares to First Banks' historical levels of return on average assets of .70%, 1.00% and 1.16% for the years ended December 31, 1995, 1994 and 1993, respectively. First Banks has, in the development of its banking franchise, traditionally placed primary emphasis upon acquiring other financial institutions as a means of achieving its growth objectives in order to enhance its presence in a given market, expand the extent of its market area, or enter new or non-contiguous markets. First Banks supplements its acquisitions through marketing and business development efforts designed to broaden the customer bases, strengthen particular segments of the business or fill in voids in the overall market coverage. Because all of the Common Stock of First Banks is owned by various trusts which were created by and are administered by and for the benefit of Mr. James F. Dierberg and members of his immediate family, First Banks has determined to use only cash, not common stock, in its acquisitions. Given the market attractiveness of financial institutions' stock, the advantages of tax-free exchanges and the structuring flexibility inherent in stock transactions, the fact that First Bank has determined not to issue stock in its acquisitions places it at a competitive disadvantage relative to other acquirers willing to offer stock. In light of these factors, First Banks' acquisition activities have been sporadic, with multiple transactions consummated in particular periods, followed by other relatively inactive periods. Furthermore, the resulting intangible assets recorded in conjunction with such acquisitions create an immediate reduction in regulatory capital. This reduction, as required by regulatory policy, provides further financial disincentives to paying large premiums in cash acquisitions. Recognizing these facts, First Banks has followed certain patterns in its acquisitions. First, it tends to acquire several smaller institutions, sometimes over an extended period of time, rather than a single larger one. This is due both to the constraints imposed by the amount of funds required for the larger transaction, as well as the opportunity to minimize the aggregate premium required through smaller individual transactions. Secondly, it may acquire institutions which have some problems which could reduce the attractiveness to other potential acquirers, and therefore reduce the amount of acquisition premiums required. Finally, First Banks realizes that various acquisition markets may become so competitive at times that cash transactions are not economically viable, thereby requiring it to pursue its acquisition strategy in other geographic areas. This pattern has been evident in First Banks acquisitions in the two years ended December 31, 1995. During 1995 and 1994, First Banks experienced substantial growth through the acquisition of seven banks and five thrifts. These included two acquisitions in Missouri, three in Illinois, one in Texas and six in California. These acquisitions, as more fully discussed below, provided access into several new major market areas and, accordingly, an attractive opportunity for future growth and profitability. While providing this long term opportunity, these acquisitions presented several immediate challenges. Many of the acquired institutions, particularly those in California, continue to experience significant asset quality problems. While these asset quality problems had been identified and considered in the acquisition pricing, these problems led to the substantial increase in the level of First Banks' nonperforming assets to $43.7 million at September 30, 1996 and $47.1 million at December 31, 1995, from $22.9 million and $14.8 million at December 31, 1994 and 1993, respectively. In addition to the loss of income on these assets, they required substantial dedication of management and other resources to control. 17 23 The combination of five diverse institutions into a single financial institution, FB&T, and the conversion of that entity to First Banks' systems and policies required a further commitment of time and effort. The relatively high operating costs at these institutions necessitated the re-engineering of the operating structures and cultures, including the redeployment and repricing of assets, the realignment of deposit products, the reorganization of personnel and the centralization of various bank functions. The combination of the costs of managing and servicing the portfolios of nonperforming assets, the excessive operating cost structures of the acquired entities and the additional costs associated with the re-engineering process inhibited the acquired institutions from generating income since their acquisition dates commensurate with their acquisition costs. Operating results during the years 1994 and 1995 and the nine months ended September 30, 1996 have also been adversely affected by the lower net interest margin earned by the thrifts acquired by First Banks compared with those generally earned by commercial banks. The lower net interest margin earned by the acquired thrifts, primarily River Valley Holdings, Inc. (``River Valley'') and First Federal Savings Bank of Proviso Township (``First Federal''), is attributable to their primary source of interest income and the composition of their deposit bases. Their primary source of interest income is their portfolio of residential mortgage loans and residential mortgage-backed securities, which typically yield lower interest rates than other types of interest-earning assets. In addition, the cost of deposits is generally higher due to the composition, which includes a smaller portion of noninterest bearing accounts, and slightly higher rates paid to maintain the time deposits within the competitive markets. Recognizing that the acquisition program involved the assumption of additional credit risk and lower than normal net interest margins for the thrift acquisitions, First Banks pursued a strategy of maintaining higher than average asset quality for its Missouri and Illinois operations through strict adherence to its lending policies and practices. To accomplish this, First Banks expanded its credit administration and loan review functions. In addition, in response to the interest rate risk inherent within the balance sheets of its thrifts, First Banks commenced a program designed to reduce its exposure to interest rate fluctuations. The effort to increase control over the interest rate exposure of First Banks led to substantially more sophisticated measurement systems and the implementation of a hedging program. Once the interest rate risk profile of First Banks was adequately analyzed, the hedging program was implemented during early 1994. At that time, however, interest rates had already increased. While the hedging program prevented further deterioration in the net interest margin, it eliminated the opportunity to recover from the increase in interest rates which had already occurred. As more fully discussed under ``--Interest Rate Risk Management,'' as interest rates began to decline in 1995, the underlying hedges were adjusted to reflect the increase in prepayments which were subsequently received and the corresponding shortening of the effective lives of the residential real estate asset portfolios. These factors and the cost of implementing the hedging program have had an adverse effect on net interest income and the net interest margin. Finally, in September 1996, a one-time special assessment to recapitalize the SAIF of the FDIC was enacted. The assessment was applied to all thrift deposits as of March 31, 1995. Because First Banks had been active in acquiring thrifts, a substantial portion of its deposit base was subject to the special assessment. This special assessment resulted in an $8.6 million charge, which was recorded as an expense during the nine months ended September 30, 1996. As a result of this special assessment, First Banks' cost of deposit insurance for SAIF insured deposits is expected to decrease by approximately $2.0 million for the year ended December 31, 1997 in comparison to December 31, 1996, excluding the effect of the special one-time assessment. ACQUISITIONS Prior to 1994, First Banks' acquisitions had been concentrated within its primary market area of eastern Missouri and southern Illinois. The premiums required to successfully pursue acquisitions escalated sharply in 1993, reducing dramatically the economic viability of many potential acquisitions in that area. Recognizing this, First Banks began to expand the geographic area in which it approached acquisition candidates. While First Banks was successful in making acquisitions in Chicago and northern Illinois, it became apparent that acquisition pricing, in Chicago and other areas being considered, was comparable to that of First Banks' primary acquisition area. As a result, while First Banks continued to pursue acquisitions within these areas, it turned much of its attention in 1994 and 1995 to institutions which could be acquired at more attractive prices which were within major metropolitan areas outside its immediate market area. This led to the acquisition of financial institutions which had offices in Dallas and Houston, 18 24 Texas in 1994 and Los Angeles, Orange County, Santa Barbara, San Francisco, San Jose and Sacramento, California in 1995. During 1996, 1995 and 1994, First Banks completed thirteen acquisitions. These acquisitions, as more fully described in Notes 2 and 21 to the Consolidated Financial Statements, are summarized as follows:
LOANS, NET OF NUMBER OF TOTAL UNEARNED INVESTMENT BANKING ENTITY DATE ASSETS DISCOUNT SECURITIES DEPOSITS LOCATIONS ------ ---- ------ ------------- ---------- -------- --------- (DOLLARS EXPRESSED IN THOUSANDS) 1996 Sunrise Bancorp, Inc. Roseville, California November 1, 1996 $ 112,400 61,100 18,100 92,000 3 ========== ======= ======= ======= == 1995 QCB Bancorp Long Beach, California November 30, 1995 $ 56,200 35,100 10,700 50,200 3 La Cumbre Savings Bank F.S.B. Santa Barbara, California September 1, 1995 144,000 131,000 1,000 124,000 3 First Commercial Bancorp, Inc. Sacramento, California August 23, 1995 169,000 84,600 30,700 163,600 7 Irvine City Financial Irvine, California May 31, 1995 83,300 68,700 7,500 61,600 2 HNB Financial Group Huntington Beach, California April 28, 1995 88,000 62,800 10,500 76,300 3 CCB Bancorp, Inc. Santa Ana, California March 15, 1995 193,400 114,500 31,100 156,400 3 River Valley Holdings, Inc. Chicago, Illinois January 4, 1995 412,000 225,000 125,000 286,000 10 ---------- ------- ------- ------- -- $1,145,900 721,700 216,500 918,100 31 ========== ======= ======= ======= == 1994 St. Charles Federal Savings and Loan Association St. Charles, Missouri November 30, 1994 $ 90,000 54,400 29,600 68,900 1 First Banks America, Inc. (formerly BancTEXAS Group Inc.) Houston, Texas August 31, 1994 367,000 177,000 167,000 243,600 6 Farmers Bancshares, Inc. Breese, Illinois June 3, 1994 60,700 27,100 28,300 54,500 2 Heritage National Bank St. Louis County, Missouri March 31, 1994 63,800 32,200 21,200 57,100 2 First Federal Savings Bank of Proviso Township Chicago, Illinois January 3, 1994 230,000 57,900 153,800 168,500 1 ---------- ------- ------- ------- -- $ 811,500 348,600 399,900 592,600 12 ========== ======= ======= ======= == - -------- Sunrise Bancorp, Inc. was acquired subsequent to September 30, 1996 and, accordingly, is not reflected in the consolidated financial statements as of September 30, 1996. QCB Bancorp, Irvine City Financial and HNB Financial Group and their respective banking and thrift subsidiaries were merged into CCB Bancorp, Inc. and its wholly owned banking subsidiary, FB&T. LaCumbre Savings Bank F.S.B. was merged into FB&T. River Valley Savings Bank, F.S.B., a wholly-owned thrift subsidiary of River Valley Holdings, Inc., and First Federal Savings Bank of Proviso Township were merged into First Bank FSB. Farmers Bancshares, Inc. and its banking subsidiaries were merged into First Banks and First Bank Illinois, respectively. Heritage National Bank was merged into First Bank Missouri. First Bank FSB and St. Charles Federal Savings and Loan Association (``St. Charles Federal'') merged on December 12, 1996 and will collectively operate as First Bank FSB.
19 25 The aforementioned acquisitions were funded by First Banks, Inc. from available cash reserves, proceeds from the sales and maturities of available for sale investment securities, borrowings under promissory notes to former shareholders, and borrowings under the Credit Agreement. See ``Notes 2 and 21 to the Consolidated Financial Statements.'' FINANCIAL CONDITION AND AVERAGE BALANCES First Banks' total average assets were $3.53 billion and $3.44 billion for the nine month periods ended September 30, 1996 and 1995, respectively, in comparison to $3.50 billion, $2.41 billion and $2.00 billion for the years ended December 31, 1995, 1994 and 1993, respectively. Total assets decreased by $70 million to $3.55 billion at September 30, 1996 from $3.62 billion at December 31, 1995. The decrease is primarily attributable to the reduction in net loans of $11 million and the settlement in January 1996 of the sale of $41 million of investment securities carried as a receivable at December 31, 1995. In addition, cash and cash equivalents and investment securities decreased by $17 million and $10 million, respectively, as of September 30, 1996, in comparison to December 31, 1995. The funds generated from the reduction in total assets were utilized to reduce rate-sensitive deposits. The decrease in net loans is comprised of the reductions in the residential mortgage and consumer and installment loan portfolios of $108.5 million and $68.0 million, respectively, at September 30, 1996 in comparison to December 31, 1995. Substantially offsetting these decreases, is an increase of $135.8 million in loans within the corporate banking portfolio. These changes reflect a restructuring of the loan portfolio which was initiated in early 1995. In accordance with that plan, First Banks has sold substantially all of its conforming residential mortgage production in the secondary mortgage market and has significantly reduced its origination of indirect consumer automobile loans. Tables summarizing the composition of the loan portfolio and deposits are presented under ``--Lending and Credit Management'' and ``--Deposits.'' For the year ended December 31, 1995, total average assets increased by $1.09 billion primarily as a result of the assets provided by acquisitions of $1.15 billion and internal loan growth of $66 million. This was partially offset by sales of investment securities and residential mortgage loans of $399 million and $147 million, respectively, most of which were used to fund loan growth and to reduce borrowings. The internal loan growth is primarily attributable to the corporate banking activities of First Banks. Each regional lending area within First Banks' marketplace experienced growth during 1995. The continued growth within corporate banking is reflective of First Banks' commitment to expand its presence in its markets. The sales of investment securities were executed in connection with the restructuring of the acquired entities' investment portfolios, to provide funds for internal loan growth and to reduce borrowings. First Banks' acquisition program during 1994 and 1995, coupled with its internal growth in residential mortgage loans resulted in a consolidated loan portfolio which had a disproportionate amount of such loans. Although the credit risk associated with residential mortgage loans is generally relatively small, the performance of these loans in periods of changing interest rates makes their interest rate risk more difficult to manage than most other types of loans. Consequently, First Banks concluded that its residential mortgage loan portfolio as a percentage of the total loans should be reduced. Accordingly, during the nine months ended September 30, 1996, First Banks sold $147 million of residential mortgage loans which resulted in a loss of $284,000. During the nine months ended September 30, 1996, First Banks sold various pools of residential mortgage loans held by entities acquired in 1995. The net gains and losses from these transactions was not material. The average balance of notes payable increased by $67.6 million to $83.1 million for 1995, in comparison to $15.5 million and $3.3 million for 1994 and 1993, respectively. The increase was used to provide funds for acquisitions completed during 1995 and 1994. For the year ended December 31, 1994, total average assets increased by $409 million. The increase is attributable to the five acquisitions completed during the year and internal loan growth primarily within the residential and commercial real estate loan portfolios. The residential loan growth resulted from a shift in customer preference from longer term fixed-rate loans, which First Banks sells in the secondary mortgage market, to adjustable rate and balloon type residential loans, which are eligible for inclusion in First Banks' loan portfolio. This shift in customer preference is normal during periods of increasing interest rates such as 1994. The growth in the commercial real estate loan portfolio is the result of the acquisitions completed during the year, the increased business development efforts of First Banks' lending officers, and generally improving economic conditions. 20 26 Average stockholders' equity continued to increase over these periods, from $189.0 million at December 31, 1993 to $238.3 million at September 30, 1996, or by $49.3 million. The increase is attributable to First Banks' practice of retaining most of its net income to further support future growth. The following table sets forth, on a tax-equivalent basis, certain information relating to First Banks' average balance sheet, and reflects the average yield earned on interest-earning assets, the average cost of interest-bearing liabilities and the resulting net interest income for the periods indicated:
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------------------------------- 1996 1995 ------------------------------ ------------------------------ INTEREST INTEREST AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ BALANCE EXPENSE RATE BALANCE EXPENSE RATE ------- -------- ------ ------- -------- ------ (DOLLARS EXPRESSED IN THOUSANDS) ASSETS Interest-earning assets: Loans: Taxable................................... $2,701,314 174,608 8.62% $2,538,575 161,143 8.46% Tax-exempt............................ 12,130 1,003 11.03 13,321 1,182 11.83 Investment securities: Taxable............................... 470,919 16,939 4.80 593,007 26,513 5.96 Tax-exempt............................ 23,551 1,544 8.74 27,056 1,650 8.13 Federal funds sold............................ 62,424 2,437 5.21 43,877 1,606 4.88 Other......................................... 31,994 1,345 5.61 11,714 971 11.05 ---------- ------- ---------- ------- Total interest-earning assets......... 3,302,332 197,876 7.99 3,227,550 193,065 7.98 ------- ------- Nonearning assets................................. 222,692 210,314 ---------- ---------- Total assets.......................... $3,525,024 $3,437,864 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: Interest-bearing demand deposits.............. $ 298,990 3,530 1.57% $ 275,788 4,238 2.05% Savings deposits.............................. 684,640 16,953 3.30 645,951 16,675 3.44 Time deposits of $100 or more............. 169,889 7,545 5.92 153,274 6,810 5.92 Other time deposits....................... 1,590,836 71,332 5.98 1,398,234 59,630 5.69 ---------- ------- ---------- ------- Total interest-bearing deposits....... 2,744,355 99,360 4.83 2,473,247 87,353 4.71 Federal funds purchased, repurchase agreements and Federal Home Loan Bank advances............. 62,354 3,187 6.81 295,474 14,653 6.61 Notes payable and other........................... 78,340 4,032 6.86 80,465 4,344 7.20 ---------- ------- ---------- ------- Total interest-bearing liabilities.... 2,885,049 106,579 4.93 2,849,186 106,350 4.98 ------- ------- Noninterest-bearing liabilities: Demand deposits............................... 365,413 331,067 Other liabilities............................. 36,252 32,585 ---------- ---------- Total liabilities..................... 3,286,714 3,212,838 Stockholders' equity.............................. 238,310 225,026 ---------- ---------- Total liabilities and stockholders' equity.............................. $3,525,024 $3,437,864 ========== ========== Net interest income................... 91,297 86,715 ======= ======= Net interest margin................... 3.69% 3.58% ===== ===== - --------- For purposes of these computations, nonaccrual loans are included in the average loan amounts. Interest income on loans includes loan fees. Information is presented on a tax-equivalent basis assuming a tax rate of 35%. The tax-equivalent adjustments were approximately $892,000 and $991,000 for the nine months ended September 30, 1996 and 1995, respec- tively, and $1.3 million, $1.3 million and $984,000 for the years ended December 31, 1995, 1994 and 1993, respectively. Includes the effects of interest rate exchange agreements.
21 27
YEARS ENDED DECEMBER 31, - --------------------------------------------------------------------------------------------------------------------- 1995 1994 1993 - --------------------------------- --------------------------------- --------------------------------- INTEREST INTEREST INTEREST AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/ BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE ------- ------- ------ ------- -------- ------ ------- -------- ------ (DOLLARS EXPRESSED IN THOUSANDS) $2,585,763 220,931 8.54% $1,602,661 128,708 8.03% $1,327,306 110,106 8.30% 13,173 1,543 11.71 13,973 1,346 9.63 13,335 1,088 8.16 585,868 34,379 5.87 593,460 29,385 4.95 497,922 26,634 5.35 26,751 2,138 7.99 27,492 2,259 8.22 18,436 1,725 9.36 52,208 2,905 5.56 37,587 1,533 4.08 50,225 1,418 2.82 14,602 1,013 6.94 9,605 466 4.85 1,691 25 1.48 - ---------- ------- ---------- ------- ---------- ------- 3,278,365 262,909 8.02 2,284,778 163,697 7.16 1,908,915 140,996 7.39 ------- ------- ------- 219,445 122,922 90,124 - ---------- ---------- ---------- $3,497,810 $2,407,700 $1,999,039 ========== ========== ========== $ 279,681 5,760 2.06% $ 234,839 4,421 1.88% $ 209,600 4,008 1.91% 663,870 22,737 3.42 537,462 15,198 2.83 425,555 11,947 2.81 166,232 9,931 5.97 72,976 3,300 4.52 54,061 2,496 4.62 1,443,026 83,595 5.79 969,840 41,170 4.25 870,929 38,635 4.44 - ---------- ------- ---------- ------- ---------- ------- 2,552,809 122,023 4.78 1,815,117 64,089 3.53 1,560,145 57,086 3.66 256,333 16,850 6.57 107,185 5,498 5.13 25,679 780 3.04 83,068 6,072 7.31 15,500 1,083 6.99 3,341 192 5.74 - ---------- ------- ---------- ------- ---------- ------- 2,892,210 144,945 5.01 1,937,802 70,670 3.65 1,589,165 58,058 3.65 ------- ------- ------- 345,397 243,829 210,022 33,345 16,692 10,804 - ---------- ---------- ---------- 3,270,952 2,198,323 1,809,991 226,858 209,377 189,048 - ---------- ---------- ---------- $3,497,810 $2,407,700 $1,999,039 ========== ========== ========== 117,964 93,027 82,938 ======= ======= ======= 3.60% 4.07% 4.34% ===== ===== =====
22 28 The following table indicates, on a tax-equivalent basis, the changes in interest income and interest expense which are attributable to changes in average volume and changes in average rates, in comparison with the same period in the preceding year. The change in interest due to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the dollar amounts of the change in each.
INCREASE (DECREASE) ATTRIBUTABLE TO CHANGE IN: -------------------------------------------------------------------------------- DECEMBER 31, 1995 DECEMBER 31, 1994 SEPTEMBER 30, 1996 COMPARED COMPARED COMPARED TO SEPTEMBER 30, 1995 TO DECEMBER 31, 1994 TO DECEMBER 31, 1993 --------------------------- ------------------------ ----------------------- NET NET NET VOLUME RATE CHANGE VOLUME RATE CHANGE VOLUME RATE CHANGE ------ ---- ------ ------ ---- ------ ------ ---- ------ (DOLLARS EXPRESSED IN THOUSANDS) INTEREST EARNED ON: Loans: Taxable......................... $ 10,398 3,067 13,465 83,570 8,653 92,223 22,061 (3,459) 18,602 Tax-exempt.................. (101) (78) (179) (71) 268 197 54 204 258 Investment securities: Taxable..................... (4,921) (4,653) (9,574) (368) 5,362 4,994 4,461 (1,710) 2,751 Tax-exempt.................. (252) 146 (106) (59) (62) (121) 710 (176) 534 Federal funds sold.................. 716 115 831 710 662 1,372 (148) 263 115 Other............................... 523 (149) 374 299 248 547 297 144 441 --------- ------- ------- ------ -------- ------ ------ ------ ------ Total interest income....... 6,363 (1,552) 4,811 84,081 15,131 99,212 27,435 (4,734) 22,701 --------- ------- ------- ------ -------- ------ ------ ------ ------ INTEREST PAID ON: Interest-bearing demand deposits.... 397 (1,105) (708) 892 447 1,339 475 (62) 413 Savings deposits.................... 867 (589) 278 3,965 3,574 7,539 3,165 86 3,251 Time deposits of $100 or more... 735 -- 735 5,300 1,331 6,631 857 (53) 804 Other time deposits............. 8,542 3,160 11,702 24,345 18,080 42,425 4,068 (1,533) 2,535 Federal funds purchased, repurchase agreements and Federal Home Loan Bank advances................. (11,923) 457 (11,466) 9,446 1,906 11,352 3,877 841 4,718 Notes payable and other............. (112) (200) (312) 4,937 52 4,989 841 50 891 --------- ------- ------- ------ -------- ------ ------ ------ ------ Total interest expense...... (1,494) 1,723 229 48,885 25,390 74,275 13,283 (671) 12,612 --------- ------- ------- ------ -------- ------ ------ ------ ------ Net interest income......... $ 7,857 (3,275) 4,582 35,196 (10,259) 24,937 14,152 (4,063) 10,089 ========= ======= ======= ====== ======== ====== ====== ====== ====== - ---------- For purposes of these computations, nonaccrual loans are included in the average loan amounts. Interest income on loans includes loan fees. Information is presented on a tax-equivalent basis assuming a tax rate of 35%. Includes the effect of interest rate exchange agreements.
NET INTEREST INCOME First Banks' primary source of earnings is its net interest income, which is the difference between the interest earned on its earning assets and the interest paid on its interest-bearing liabilities. Net interest income (expressed on a tax-equivalent basis) increased to $91.3 million for the nine months ended September 30, 1996, from $86.7 million for the same period in 1995. For the years ended December 31, 1995, 1994 and 1993, net interest income was $118.0 million, $93.0 million and $82.9 million, respectively. 23 29 While net interest income continued to increase during these periods, the net interest margin, which is net interest income (expressed on a tax-equivalent basis) expressed as a percentage of earning assets, decreased for all periods other than September 30, 1996. This is indicative of the fact that net interest income increased at a slower rate than the increase of earning assets, as follows:
INCREASE IN INCREASE IN EARNING ASSETS NET INTEREST NET EARNING FROM PRECEDING NET INTEREST INCOME FROM INTEREST ASSETS PERIOD INCOME PRECEDING PERIOD MARGIN ------- -------------- ------------ ---------------- -------- (DOLLARS EXPRESSED IN THOUSANDS) Nine months ended September 30, 1996.............. $3,302,332 2.32% $ 91,297 5.28% 3.69% Year ended December 31: 1995.......................................... 3,278,365 43.49 117,964 26.81 3.60 1994.......................................... 2,284,778 19.69 93,027 12.16 4.07 1993.......................................... 1,908,915 .05 82,938 .28 4.34
This is not an unusual phenomena during periods of rapid growth by cash acquisition because the reduction of interest income on internally generated funds used in acquisitions and the interest expense on debt incurred in the transactions offsets a portion of the net interest income of the entities acquired. As indicated, however, by the severity of the decline in net interest margin, other factors were involved. Since 1990, First Banks has acquired ten thrifts in various transactions. Both the regulatory requirements and the historic customer bases of thrifts tend to result in balance sheets which are predominately comprised of residential mortgage loans, frequently supplemented by mortgage-backed securities, for earning assets, and certificates of deposit, as a source of funds. For example, First Bank FSB, First Banks' largest thrift entity, had loans, net of unearned discount of $855.8 million at December 31, 1995 of which $619.2 million, or 72.4%, were residential mortgage loans, and deposits of $911.6 million of which $626.5 million, or 68.7%, were certificates of deposit. Because of the competitive, homogeneous nature of residential mortgage loans and certificates of deposit, the interest rate spreads between them tend to be more narrow than other types of loans and funding sources. For the year ended December 31, 1995, First Banks' average yield on residential real estate loans and average cost of certificates of deposit, compared to other segments of its loan portfolio and interest-bearing deposits, were as follows:
INTEREST AVERAGE PERCENT OF INCOME/ YIELD/ BALANCES TOTAL EXPENSE RATE -------- ---------- -------- ------ (DOLLARS EXPRESSED IN THOUSANDS) Residential mortgage loans.................................. $1,253,474 48.48% $ 99,656 7.95% Other Loans................................................. 1,332,289 51.52 122,818 9.22 ---------- -------- -------- Total loans............................................. $2,585,763 100.00% $222,474 8.60% ========== ======== ======== ===== Certificates of deposit..................................... $1,609,258 63.04% $ 93,526 5.81% Other interest-bearing deposits............................. 943,551 36.96 28,497 3.02 ---------- -------- -------- Total interest-bearing deposits......................... $2,552,809 100.00% $122,023 4.78% ========== ======== ======== =====
In addition to the narrow interest spread between the yield on residential mortgage loans and the rates paid on certificates of deposit, mortgage loans introduce various prepayment alternatives for borrowers which exacerbate the inherent interest rate risk associated with their typically long maturities. For these two reasons, in 1994, First Banks initiated a plan to reduce its reliance on residential mortgage loans within its portfolio. The change in the portfolio composition required the concurrent internal generation of other types of loans, particularly commercial and industrial, real estate construction and development and commercial real estate loans, a process which had previously been initiated. Consequently, this process focused on continuing to build this business development function as well as the control and servicing staff which are necessary to support it. As the growth of other loans developed, First Banks began selling essentially all of its production of conforming residential mortgage loans in the secondary market. This process was expedited by the sale of a portfolio of residential mortgage loans of $147 million in 1995 and various pools of residential mortgage loans held by acquired entities during the nine months ended September 30, 1996. See ``--Mortgage Banking Activities'' and ``--Loans and Allowance for Possible Loan Losses.'' 24 30 While this process was occurring, First Banks expanded its interest rate risk management to improve its risk measurement techniques and reporting, and increase its risk control abilities. This included initiating a program of substantial use of derivative financial instruments to reduce interest rate exposure. Beginning in early 1994, First Banks used a combination of interest rate futures, options on futures, swaps, caps and floors to reduce its exposure, primarily arising from residential mortgage loans and mortgage-backed securities. The expense of these derivative financial instruments is a component of net interest income as summarized below.
COST OF INTEREST RATE: --------------------------------- SWAP, CAP REDUCTION EFFECT ON FUTURES AND AND FLOOR OF NET NET INTEREST OPTIONS ON FUTURES AGREEMENTS INTEREST INCOME MARGIN ------------------ ---------- --------------- ------------ (DOLLARS EXPRESSED (EXPRESSED IN IN THOUSANDS) BASIS POINTS) Nine months ended September 30: 1996................................ $2,713 6,035 8,748 (35) 1995................................ 1,050 5,168 6,218 (26) Year ended December 31: 1995................................ 2,210 6,911 9,121 (28) 1994................................ -- 490 490 (2) 1993................................ -- -- -- -- - -------- Effect on net interest margin is expressed as reduction of net interest income divided by average earning assets, annualized.
INTEREST RATE RISK MANAGEMENT In financial institutions, the maintenance of a satisfactory level of net interest income is a primary factor in achieving acceptable income levels. The maturity and repricing characteristics of the institution's loan and investment portfolios, relative to those within its deposit structure, may, however, differ significantly. Furthermore, the ability of borrowers to repay loans and depositors to withdraw funds prior to stated maturity dates introduces divergent option characteristics which operate primarily as interest rates change. This causes various elements of the institution's balance sheet to react in different manners and at different times relative to changes in interest rates, thereby leading to increases or decreases in net interest income over time. Depending upon the nature and velocity of interest rate movements and their effect on the specific components of the institution's balance sheet, the effects on net interest income can be substantial. Consequently, a fundamental requirement in managing a financial institution is establishing effective control of the exposure of the institution to changes in interest rates. First Banks manages its interest rate risk by: (1) maintaining an Asset Liability Committee (``ALCO'') responsible to First Banks' Board of Directors to review the overall interest rate risk management activity and approve actions taken to reduce risk; (2) maintaining an effective monitoring mechanism to determine First Banks' exposure to changes in interest rates; (3) coordinating the lending, investing and deposit-generating functions to control the assumption of interest rate risk; and (4) employing various off-balance-sheet financial instruments to offset inherent interest rate risk when it becomes excessive. The objective of these procedures is to limit the adverse impact which changes in interest rates may have on net interest income. The ALCO has overall responsibility for the effective management of interest rate risk and the approval of policy guidelines. The ALCO includes the Chairman and Chief Executive Officer, the senior executives of investments, credit, retail banking and finance, and certain other officers. The ALCO is supported by the Asset Liability Management Group which monitors interest rate risk, prepares analyses for review by the ALCO and implements actions which are either specifically directed by the ALCO or established by policy guidelines. To measure the effect of interest rate changes, First Banks recalculates its net income over two one-year horizons on a pro forma basis assuming instantaneous, permanent parallel and non-parallel shifts in the yield curve, in varying amounts both upward and downward. As discussed previously, during 1994, First Banks expanded its use of off-balance-sheet derivative financial instruments to assist in the management of interest rate sensitivity. These off-balance-sheet derivative financial 25 31 instruments are utilized to modify the repricing, maturity and option characteristics of on-balance-sheet assets and liabilities. First Banks utilizes a combination of off-balance-sheet derivative financial instruments, generally limited to interest rate swap agreements, interest rate cap and floor agreements, interest rate futures contracts, options on interest rate futures contracts and forward contracts to sell mortgage-backed securities. The use of such derivative financial instruments is strictly limited to reducing the interest rate exposure of First Banks. See ``Notes 1 and 11 to the Consolidated Financial Statements.'' Derivative financial instruments held by First Banks for purposes of managing interest rate risk are summarized as follows:
SEPTEMBER 30, DECEMBER 31, DECEMBER 31, 1996 1995 1994 --------------------- --------------------- --------------------- NOTIONAL CREDIT NOTIONAL CREDIT NOTIONAL CREDIT AMOUNT EXPOSURE AMOUNT EXPOSURE AMOUNT EXPOSURE -------- -------- -------- -------- -------- -------- (DOLLARS EXPRESSED IN THOUSANDS) Interest rate swap agreements..................... $145,000 -- 145,000 -- 265,000 2,441 Interest rate floor agreements.................... 105,000 131 105,000 608 -- -- Interest rate cap agreements...................... 30,000 437 30,000 292 10,000 577 Forward commitments to sell mortgage-backed securities...................................... 31,000 -- 42,000 -- 24,000 --
The notional amounts of derivative financial instruments do not represent amounts exchanged by the parties and, therefore, are not a measure of First Banks' credit exposure through its use of derivative financial instruments. The amounts exchanged are determined by reference to the notional amounts and the other terms of the derivatives. First Banks sold interest rate futures contracts and purchased options on interest rate futures contracts to hedge the interest rate risk of its available-for-sale securities portfolio. Interest rate futures contracts are commitments to either purchase or sell designated financial instruments at a future date for a specified price and may be settled in cash or through delivery of such financial instruments. Options on interest rate futures contracts confer the right to purchase or sell financial futures contracts at a specified price and are settled in cash. With the emphasis on limiting First Banks' reliance on residential mortgage based assets and the overall expansion of the loan portfolio during 1994 and 1995, the relative magnitude and primary function of the investment portfolio changed. During the year ended December 31, 1994, investments securities represented 27.2% of average earning assets. This decreased to 18.7% for the year ended December 31, 1995 and 15.0% for the nine months ended September 30, 1996. This reduction in the investment security portfolio and corresponding increase in the magnitude of the loan portfolio increased the importance of liquidity as a securities selection criteria. Generally, this resulted in reducing the average maturity of the portfolio and directing available funds into more readily marketable securities, primarily U.S. Treasury and generic U.S. government agencies obligations. Consequently, mortgage-backed securities in the portfolio decreased from $351.8 million, or 59.8% of the portfolio, at December 31, 1994, to $235.5 million, or 46.3% of the portfolio, at December 31, 1995, and $197.2 million, or 39.5% of the portfolio at September 30, 1996. These changes had a substantial effect on the interest rate risk characteristics of the portfolio, and consequently the magnitude of hedging required and methods used to limit interest rate risk. As a result, beginning in the second quarter of 1995, First Banks began to reduce its hedge position to coincide with the current expected life of the available for sale securities portfolio by decreasing the number of outstanding interest rate futures contracts. First Banks continued to reduce its hedge position through additional reductions in the number of outstanding interest rate futures contracts during the third quarter as a result of certain investment security sales and further declines in interest rates. In addition, during the fourth quarter of 1995, the remaining outstanding interest rate futures contracts were closed. The closure of the remaining contracts reflects First Banks' decision to manage the interest rate risk of the overall balance sheet, rather than specific components. The net change in the unamortized balance of net deferred losses to $4.6 million at December 31, 1995, from a net deferred gain of $6.5 million at December 31, 1994, is attributable to the significant decline in interest rates which occurred during 1995. The losses incurred on the interest rate futures contracts were partially offset by gains in the available for sale securities portfolio. The loss in market value, net of related tax benefit, for the available for sale securities portfolio totaled $1.3 million during the period from December 31, 1994 to December 31, 1995. The loss in market value resulted from an increase in the projected prepayments of principal underlying the available for sale 26 32 securities portfolio. These increased prepayment projections disproportionately shortened the expected lives of the available for sale securities portfolio in comparison to the effective maturity created with the hedge position. The decrease in the unamortized balance of net deferred futures losses during the nine month period ended September 30, 1996 consists of amortization of $2.7 million and recognition of $700,000 of realized hedging losses in connection with sales of investment securities. The unamortized balance of net deferred losses on interest rate futures contracts of $1.2 million and $4.6 million at September 30, 1996 and December 31, 1995, respectively, and net deferred gains on interest rate futures contracts of $6.5 million at December 31, 1994, respectively, were applied to the carrying value of the available for sale securities portfolio as part of the mark-to-market valuation. Interest rate swap agreements are utilized to extend the repricing characteristics of certain interest-bearing liabilities to correspond more closely with the assets of First Banks, with the objective of stabilizing net interest income over time. The net interest expense for these agreements was $5.8 million and $4.9 million for the nine months ended September 30, 1996 and 1995, respectively, and $6.6 million and $490,000 for the years ended December 31, 1995 and 1994, respectively. The maturity dates, notional amounts, interest rates paid and received, and fair values of interest rate swap agreements outstanding as of the dates indicated are summarized as follows:
INTEREST NOTIONAL RATE FAIR VALUE MATURITY DATE AMOUNT PAID RECEIVED GAIN (LOSS) ------------- -------- ---- -------- ----------- (DOLLARS EXPRESSED IN THOUSANDS) September 30, 1996: September 30, 1997..................................................... $ 35,000 7.04% 5.55% $ (364) December 8, 1997....................................................... 15,000 7.90 5.66 (333) September 30, 1999..................................................... 35,000 7.32 5.55 (744) September 30, 2001..................................................... 35,000 7.65 5.55 (1,250) January 30, 2005....................................................... 25,000 8.13 5.63 (1,753) -------- -------- $145,000 7.53 5.56 $ (4,444) ======== ==== ==== ======== December 31, 1995: September 30, 1997..................................................... $ 35,000 7.04% 5.69% $ (932) December 8, 1997....................................................... 15,000 7.90 5.81 (711) September 30, 1999..................................................... 35,000 7.32 5.69 (2,073) September 30, 2001..................................................... 35,000 7.65 5.69 (3,207) January 30, 2005....................................................... 25,000 8.13 5.94 (3,703) -------- -------- $145,000 7.53 5.74 $(10,626) ======== ==== ==== ======== December 31, 1994: December 8, 1996....................................................... $100,000 7.79% 6.38% $ 8 December 8, 1997....................................................... 65,000 7.90 6.38 309 October 21, 1997....................................................... 50,000 7.20 5.56 1,086 October 21, 1999....................................................... 30,000 7.56 5.56 667 October 21, 2001....................................................... 20,000 7.77 5.56 371 -------- -------- $265,000 7.68 6.07 $ 2,441 ======== ==== ==== ========
In connection with the sale of a pool of approximately $147 million of residential mortgage loans and repayment of the related short-term borrowings, on May 25, 1995, First Banks terminated a $100 million interest rate swap agreement resulting in a loss of $3.3 million. The loss on the termination of the $100 million interest rate swap agreement has been reflected in the consolidated statement of income for the year ended December 31, 1995. In addition, First Banks experienced a shortening of the expected life of its loan portfolio. This decrease was the result of the decision by First Banks to reduce its portfolio of residential mortgage loans by selling essentially all of its new loan originations in the secondary market as well as significant decline in interest rates during 1995, which caused 27 33 an increase in the projections of principal prepayments of residential mortgage loans. These factors disproportionately shortened the expected life of the loan portfolio relative to the effective maturity created with the interest rate swap agreements. Consequently, during July 1995, First Banks shortened the effective maturity of its interest-bearing liabilities through the termination of $225 million interest rate swap agreements at a loss of $13.5 million. This loss has been deferred and is being amortized over the remaining lives of the swap agreements. If all or any portion of the underlying liabilities are repaid, the related deferred loss will be charged to operations. During November 1996, First Banks shortened the effective maturity of its interest-bearing liabilities through the termination of $75 million of interest rate swap agreements at a loss of $5.3 million. This termination reduced the effective maturity of liabilities in response to the decrease in the effective life of the loan portfolio, which occurred primarily as a result of continuing reduction in the residential mortgage loan portfolio. The loss incurred will be deferred and amortized over the remaining lives of the swap agreements, unless the underlying liabilities are repaid prior to that date. First Banks also has interest rate cap and floor agreements to limit the interest expense associated with certain of its interest-bearing liabilities and the net interest expense of certain interest rate swap agreements, respectively. At September 30, 1996, December 31, 1995 and 1994, the unamortized costs for these agreements were $470,000, $685,000 and $577,000, respectively, and were included in other assets. There are no amounts receivable under these agreements. As more fully discussed under ``--Mortgage Banking Activities,'' derivative financial instruments issued by First Banks consist of commitments to originate fixed-rate loans. Commitments to originate fixed-rate loans consist primarily of residential real estate loans. These loan commitments, net of estimated underwriting fallout, and loans held for sale are hedged with forward contracts to sell mortgage-backed securities. 28 34 In addition to the simulation model employed by First Banks, a more traditional interest rate sensitivity position is prepared and reviewed in conjunction with the results of the simulation model. The following table presents the projected maturities and periods to repricing of First Banks' rate-sensitive assets and liabilities as of December 31, 1995, adjusted to account for prepayment assumptions:
OVER THREE OVER SIX THREE THROUGH THROUGH OVER ONE MONTHS SIX TWELVE THROUGH OVER FIVE IMMEDIATE OR LESS MONTHS MONTHS FIVE YEARS YEARS TOTAL --------- ------- ---------- -------- ---------- --------- ----- (DOLLARS EXPRESSED IN THOUSANDS) Interest-earning assets: Loans..................................... $347,887 231,398 400,654 660,505 1,006,406 97,369 2,744,219 Investment securities......................... 59,029 76,869 57,098 50,790 196,714 67,823 508,323 Federal funds sold............................ 53,800 -- -- -- -- -- 53,800 Receivable from sale of investment securities.................................. -- 41,265 -- -- -- -- 41,265 Interest-bearing deposits with other financial institutions................................ 16,110 750 -- -- -- -- 16,860 -------- -------- -------- ------- --------- ------- --------- Total interest-earning assets............. $476,826 350,282 457,752 711,295 1,203,120 165,192 3,364,467 ======== ======== ======== ======= ========= ======= ========= Interest-bearing liabilities: Interest-bearing demand accounts.............. -- 113,805 70,745 46,138 33,834 43,062 307,584 Savings accounts.............................. -- 56,609 46,619 39,959 56,610 133,198 332,995 Money market demand accounts.................. 357,907 -- -- -- -- -- 357,907 Time deposits................................. -- 491,217 304,631 499,595 499,105 999 1,795,547 Other borrowed funds.......................... 62,977 86,688 1,110 4,787 3,570 544 159,676 -------- -------- -------- ------- --------- ------- --------- Total interest-bearing liabilities........ 420,884 748,319 423,105 590,479 593,119 177,803 2,953,709 Effect of interest rate exchange agreements on rate-sensitive liabilities...................... -- (145,000) -- -- 85,000 60,000 -- -------- -------- -------- ------- --------- ------- --------- Total rate-sensitive liabilities adjusted for impact of interest rate exchange agreements.............................. $420,884 603,319 423,105 590,479 678,119 237,803 2,953,709 ======== ======== ======== ======= ========= ======= ========= Interest sensitivity gap: Periodic...................................... $ 55,942 (253,037) 34,647 120,816 525,001 72,611 410,758 ========= Cumulative.................................... 55,942 (197,095) (162,448) (41,632) 483,369 410,758 ======== ======== ======== ======= ========= ======= Ratio of interest-sensitive assets to interest- sensitive liabilities: Periodic...................................... 1.13 0.58 1.08 1.20 1.77 0.69 1.14 ========= Cumulative.................................... 1.13 0.81 0.89 0.98 1.18 1.14 ======== ======== ======== ======= ========= ======= - --------- Loans presented net of unearned discount.
Management makes certain assumptions in preparing the table above. These assumptions include: (i) loans will repay at historic repayment speeds; (ii) mortgage-backed securities, included in investment securities, will repay at projected repayment speeds; (iii) interest-bearing demand accounts and savings accounts are interest sensitive at a rate of 37% and 17%, respectively, of the remaining balance for each period presented; and (iv) fixed maturity deposits will not be withdrawn prior to maturity. Actual experience may differ from the rates assumed in preparing this table. At December 31, 1995, First Banks was liability sensitive on a cumulative basis through the twelve-month time horizon by $41.6 million or 1.1% of total assets. This compares to a liability-sensitive position on a cumulative basis over the same time horizon of $80.6 million or 2.8% of total assets at December 31, 1994. The reduced liability-sensitive position for 1995 reflects the reduction in short-term borrowings and the change in the composition of acquired assets and liabilities. 29 35 The interest sensitivity position is one of several measurements of the impact of interest rate changes on net interest income. Its usefulness in assessing the effect of potential changes in net interest income varies with the constant change in the composition of First Banks' assets and liabilities and changes in interest rates. For this reason, First Banks places greater emphasis on a simulation model for monitoring its interest rate exposure. MORTGAGE BANKING ACTIVITIES The mortgage banking activities of First Banks consist of the origination and purchase of residential mortgage loans. Generally, First Banks sells its production of residential mortgage loans in the secondary loan markets. Servicing rights are retained with respect to conforming fixed rate loans. Other loans are sold on a servicing released basis. In conjunction with its de-emphasis of residential mortgage lending for its loan portfolio, First Banks is considering subcontracting its mortgage loan servicing and transferring its origination function to an entity which would be indirectly owned by First Banks' voting shareholders. It is not anticipated that any such subcontract and transfer, if consummated, would have a material effect on the financial condition or results of operations of First Banks. First Banks may also consider selling its residential mortgage servicing, either to an unrelated entity or an entity which would be indirectly owned by First Banks' voting shareholders. If such a transaction is initiated, its purpose would be to redeploy the capital allocated to its mortgage servicing to assets which would provide a greater and more stable return on capital to First Banks. For the nine month periods ended September 30, 1996 and 1995, First Banks originated and purchased loans for resale totaling $104 million and $139 million and sold loans totaling $91 million and $27 million, respectively. For the three years ended December 31, 1995, 1994 and 1993, First Banks originated and purchased loans for resale totaling $67 million, $81 million and $266 million and sold loans totaling $207 million, $168 million and $268 million, respectively. Mortgage loans serviced for investors totaled $856 million and $861 million at September 30, 1996 and 1995, and $888 million, $699 million and $661 million at December 31, 1995, 1994 and 1993, respectively. The increase for the year ended December 31, 1995 reflects the production of new loans and servicing held by various acquired entities, partially offset by First Banks' sale of $427 million of mortgage loan servicing rights during the year. First Banks elected to sell the servicing rights after a review of the prospective profitability of its mortgage servicing portfolio, the favorable sales prices available in the market, and the substantial increases to the portfolio resulting from various acquisitions. This sale resulted in a gain of $3.8 million for the nine month period ended September 30, 1995. The interest income earned on loans held for sale prior to interest expense and the cost of capital was $2.5 million and $2.2 million for the nine month periods ended September 30, 1996 and 1995 and $3.2 million, $4.7 million and $8.2 million for the three years ended December 31, 1995, 1994 and 1993, respectively. The fluctuations in interest income during these periods relate primarily to changes in the average balance of loans held for sale and the related loan volumes, and the prevailing interest rate when the loans were made. The average balance of loans held for sale was $39.8 million and $33.2 million for the nine month periods ended September 30, 1996 and 1995, and $36.8 million, $59.2 million and $109.0 million for the years ended December 31, 1995, 1994 and 1993, respectively. The mortgage loan servicing fees are reported net of mortgage-backed security guarantee fee expense, interest shortfall and amortization of purchased mortgage servicing rights. Loan servicing fees were $2.0 million and $2.3 million for the nine month periods ended September 30, 1996 and 1995, and $2.9 million, $1.6 million and $1.2 million for the years ended December 31, 1995, 1994 and 1993, respectively. Associated with the activity of originating and purchasing loans to be sold into the secondary market are the realized and unrealized gains, net of losses, incurred during the period prior to sale. These net gains or losses include: (1) the adjustments of the carrying values of loans held for sale to current market values; (2) the adjustments for any gains or losses on loan commitments for which the interest rate has been established, net of anticipated underwriting ``fallout''; and (3) the related cost of hedging the loans held for sale and loan commitments during the period First Banks is exposed to interest rate risk. The loss on mortgage loans originated for resale, including loans sold and held for sale, was $7,000 and $622,000 for the nine month periods ended September 30, 1996 and 1995, respectively. The loss on mortgage loans originated for resale, including loans sold and held for sale, was $608,000 for the year ended December 31, 1995, in comparison to a gain of $126,000 and a loss of $1.7 million for the years ended December 31, 1994 and 1993, respectively. The loss incurred during 1993 was primarily attributable to the unprecedented high 30 36 volumes of residential fixed-rate loan commitments and residential fixed-rate loans held for sale during this period. For the nine month period ended September 30, 1996 and for the years ended December 31, 1995 and 1994, the origination volumes of residential fixed-rate loans declined. With the reduced volumes, the mortgage banking operation was able to originate, package and sell its production on a more timely basis and, accordingly, reduce the associated hedge cost. While First Banks experienced higher levels of losses during 1993, these losses were more than offset by the additional net interest income earned from the higher average balance of the portfolio of loans held for sale during these same periods. As more fully described under ``--Interest Rate Risk Management,'' First Banks' interest rate risk management policy provides certain hedging parameters to reduce the interest rate exposure arising from changes in loan prices from the time of commitment until the sale of the security or the loan. To reduce this exposure, First Banks utilizes forward commitments to sell fixed-rate mortgage-backed securities at a specified date in the future. At September 30, 1996, December 31, 1995 and 1994, First Banks had $35.7 million, $42.4 million and $25.0 million of loans held for sale and related commitments, net of committed loan sales and estimated underwriting fallout, of which $31.0 million, $42.0 million and $24.0 million, respectively, were hedged through the use of such forward commitments. COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995 NET INCOME. Net income for the nine months ended September 30, 1996 was $11.4 million compared to $19.6 million for the same period in 1995. This represents a return on average assets of .43% and .76% for the nine months ended September 30, 1996 and 1995, respectively. This compares to First Banks' historical levels of return on average assets of .70%, 1.00% and 1.16% for the years ended December 31, 1995, 1994 and 1993, respectively. The decline in operating results in 1996 and 1995 reflects several influences which have had significant adverse effects on earnings. As previously discussed, during this period First Banks completed 12 acquisitions located in four states, increasing total assets approximately $2.0 billion. See ``--General.'' Eight of these acquired entities have been merged with other First Banks subsidiaries. Most of the acquired institutions exhibited significant financial distress prior to their acquisition, generally related to asset quality problems and/or high operating expenses. Consequently, in the periods since their respective dates of acquisition, management of First Banks has worked with management of the acquired institutions to completely reorient their positions within their market places, restructure their balance sheets and revise their systems and procedures. This has required a significant dedication of resources by First Banks, both in terms of expenses and personnel. Substantial expenses have been incurred in reorganizing, retraining and reducing staff, converting data processing systems, instituting and controlling new policies and procedures, and merging corporate cultures, not only with that of First Banks, but also between acquired institutions. This process has been complicated by the existence of what is collectively a substantial portfolio of problem assets. While the provisions for possible loan losses in California and Texas have been substantial, this represents only a portion of the cost of carrying the problem assets. In addition to that expense is the loss of income on nonperforming assets, the management, legal and other costs associated with managing and collecting problem loans, and the expenses incurred in foreclosing, operating, holding and disposing of real estate and other collateral acquired from problem borrowers. Although these factors were anticipated prior to the acquisitions and are considered acceptable as costs of building the long term franchise value of First Banks, they had a substantial effect on First Banks' profitability for the 31 37 nine month periods ended September 30, 1996 and 1995. A comparison of the relative profitability of First Banks' investment in bank and thrift subsidiaries by area is as follows:
NINE MONTHS ENDED SEPTEMBER 30, --------------------------------------------------------- CALIFORNIA TEXAS OTHER ---------------- --------------- ---------------- 1996 1995 1996 1995 1996 1995 -------- ---- -------- ---- -------- ---- (DOLLARS EXPRESSED IN THOUSANDS) Equity in income (loss) of subsidiaries....... $ 3,106 2,689 666 (1,681) 16,834 21,112 Average investment in subsidiaries............ 50,819 43,790 25,893 27,888 213,843 222,258 Return on average investment, annualized...... 8.15 8.19 3.43 (8.04) 10.50 12.67 - -------- Excludes the effect of the one-time FDIC special assessment, net of related tax benefit.
As previously discussed, during 1994 First Banks expanded its hedging activities through the use of derivative financial instruments as a means to reduce its interest rate risk exposure. The hedges were generally established between September 1994, after a significant increase in interest rates had already occurred, and March 1995, when interest rates began to decrease. While being conceptually appropriate in reducing interest rate risk, because of its timing, this hedging process did not have an opportunity to contribute to protecting First Banks from the adverse effects of increasing interest rates, but limited substantially its opportunity to benefit from decreasing interest rates. The expense of such derivative financial instruments was $8.7 million for the nine months ended September 30, 1996, in comparison to $6.2 million for the same period in 1995. The expense of derivative financial instruments was $9.1 million and $490,000 for the years ended December 31, 1995 and 1994, respectively. The results of operations for the nine months ended September 30, 1996 were also adversely affected by an $8.6 million charge for the one-time special deposit insurance assessment passed by Congress and signed by President Clinton on September 30, 1996. This special assessment will be used to recapitalize the SAIF of the FDIC in order to bring it into parity with the BIF of the FDIC. In addition, income for the nine months ended September 30, 1995 included net securities gains of $2.8 million compared to net securities losses of $421,000 for the same period in 1996. As previously discussed, net interest income (expressed on a tax-equivalent basis) for the nine months ended September 30, 1996 was $91.3 million, or 3.69% of average interest earning assets, compared to $86.7 million, or 3.58% of average interest earning assets, for the same period in 1995. PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses was $8.8 million and $8.4 million for the nine months ended September 30, 1996 and 1995, respectively, while net loan charge-offs were $16.1 million and $9.6 million for the same periods. Several of First Banks' acquisitions in 1995 and 1994 included significant portfolios of problem assets. This is particularly evident in California, where the economy has been weak in recent years. Of First Banks' total nonperforming assets of $43.7 million at September 30, 1996, $18.1 million, or 41.4%, were held by the California and Texas banks. As this would suggest, during the nine month periods ended September 30, 1996 and 1995, a substantial portion of First Banks' net loan charge-offs and provisions for possible loan losses related to loans of the California or Texas banks. 32 38 The following is a summary of loan loss experience by geographic areas for the nine month periods ended September 30, 1996 and 1995:
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------------------------------------------------------------- CALIFORNIA TEXAS OTHER TOTAL --------------- --------------- ----------------- ----------------- 1996 1995 1996 1995 1996 1995 1996 1995 ---- ---- ---- ---- ---- ---- ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Total loans................... $402,378 441,542 172,737 202,336 2,157,911 2,104,837 2,733,026 2,748,715 Total assets.................. 559,950 610,983 271,700 306,744 2,714,504 2,782,234 3,546,154 3,699,961 Provisions for possible loan losses...................... 4,024 415 600 5,525 4,150 2,509 8,774 8,449 Net loan charge-offs.......... (8,612) (6,158) (1,921) (2,328) (5,541) (1,122) (16,074) (9,609) Net loan charge-offs as a percentage of average loans................... 2.67% 2.58% 1.47% 1.50% .35% .07% .79% .50% - -------- Ratios of net loan charge-offs as a percentage of average loans are annualized.
The provision for possible loan losses for the nine months ended September 30, 1995 reflects a special provision of $3.7 million. This special provision related to FBA's portfolio of automobile loans which had experienced increased levels of loan charge-offs and loans past due 30 days or more within that portfolio during 1995. The provision for possible loan losses for the nine month period ended September 30, 1996 reflects an additional provision attributable to a single commercial loan of First Bank (Missouri) of approximately $3.7 million which was fully charged-off. The loan was identified in 1995 as having potential problems creating uncertainty as to its collectibility. During the nine months ended September 30, 1996, the borrower failed to meet certain previously-agreed financial measures and principal reductions. As a result, it became apparent the loan could not be collected in the normal course of business and was charged-off. Tables summarizing nonperforming assets, past due loans and charge-off experience are presented under ``--Loans and Allowance for Possible Loan Losses.'' 33 39 NONINTEREST INCOME AND EXPENSE. The following table summarizes noninterest income and noninterest expense for the nine month periods September 30, 1996 and 1995, respectively.
SEPTEMBER 30, INCREASE (DECREASE) ---------------- ------------------- 1996 1995 AMOUNT % ---- ---- ------ - (DOLLARS EXPRESSED IN THOUSANDS) Noninterest income: Service charges on deposit accounts and customer service fees................ $ 9,411 7,634 1,777 23.28% Credit card fees............................................................. 1,897 1,615 282 17.46 Loan servicing fees, net..................................................... 2,027 2,286 (259) (11.33) Gain (loss) on mortgage loans sold and held for sale: Originated for sale...................................................... (7) (338) 331 (97.93) Other loan sales......................................................... -- (284) 284 -- Trust and brokerage fees..................................................... 512 530 (18) (3.40) Net gain (loss) on sales of securities....................................... (421) 2,765 (3,186) (115.23) Gain on sale of mortgage loan servicing rights............................... -- 3,843 (3,843) -- (Loss) on cancellation of interest rate swap agreement....................... -- (3,342) 3,342 -- Other........................................................................ 2,379 2,933 (554) (18.89) ------- ------ ------ Total noninterest income............................................. $15,798 17,642 (1,844) (10.45) ======= ====== ====== ======= Noninterest expense: Salaries and employee benefits............................................... $30,085 27,938 2,147 7.68% Occupancy, net of rental income.............................................. 7,245 6,244 1,001 16.03 Furniture and equipment...................................................... 5,404 4,982 422 8.47 Federal Deposit Insurance Corporation premiums............................... 11,355 3,810 7,545 198.03 Postage, printing and supplies............................................... 3,660 3,360 300 8.93 Data processing fees......................................................... 3,479 3,560 (81) (2.28) Legal, examination and professional fees..................................... 3,620 3,975 (355) (8.93) Credit card expenses......................................................... 2,149 1,762 387 21.96 Communications............................................................... 1,992 1,744 248 14.22 Advertising.................................................................. 1,253 1,473 (220) (14.94) Losses and expenses on foreclosed real estate, net of gains.................. 951 539 412 76.44 Other........................................................................ 10,044 7,314 2,730 37.33 ------- ------ ------ Total noninterest expense............................................ $81,237 66,701 14,536 21.79 ======= ====== ====== =======
Noninterest income was $15.8 million for the nine months ended September 30, 1996, in comparison to $17.6 million for the same period in 1995. The decrease for the nine months ended September 30, 1996 is primarily attributable to net security losses of $421,000 for the nine months ended September 30, 1996 in comparison to net securities gains of $2.8 million for the same period in 1995, partially offset by the additional noninterest income generated from the acquisitions completed throughout 1995 and 1994. An increase of $2.1 million in service charges, customer service fees and credit card fees for the nine months ended September 30, 1996, compared to the same period in 1995, relates primarily to the aforementioned acquisitions. For the nine months ended September 30, 1996, loan servicing fees, net, decreased by $259,000, in comparison to the same period in 1995. As more fully described under ``--Mortgage Banking Activities'', the decrease is attributable to the sale of $427 million of mortgage loan servicing rights during July 1995. During the nine months ended September 30, 1995, First Banks decided to sell $427 million of mortgage servicing rights due to favorable pricing available in the marketplace at that time. This sale resulted in a gain of $3.8 million. 34 40 In addition, First Banks sold $147 million of residential mortgage loans during the nine months ended September 30, 1995, resulting in a loss of $284,000. In connection with the sale of these loans, First Banks terminated an interest rate swap agreement, resulting in a loss of $3.3 million for the nine months ended September 30, 1995. Noninterest income also includes net security losses of $421,000 for the nine months ended September 30, 1996, in comparison to net security gains of $2.8 million for the same period in 1995. The securities sold were classified as available for sale within the investment security portfolio. Gross gains and losses were $445,000 and $166,000, respectively, for the nine months ended September 30, 1996. For the nine months ended September 30, 1995, the gross gains and losses were $8.0 million and $1.2 million, respectively. The net security losses include the recognition of $700,000 and $4.0 million of realized hedging losses for the nine month periods ended September 30, 1996 and 1995, respectively. The increase in other income for the nine months ended September 30, 1996 relates primarily to a non-recurring gain of $795,000 realized from the termination of a leveraged lease and the related sale of the underlying leased assets. Included in other income for the nine months ended September 30, 1995 was $802,000 from the termination of a self-insurance trust. Noninterest expense was $81.2 million and $66.7 million for the nine months ended September 30, 1996 and 1995, respectively. The increase of $14.5 million is primarily attributable to the one-time special assessment discussed below and incremental operating expenses of the seven acquisitions completed throughout 1995. In particular, salaries and employee benefits increased by $2.2 million to $30.1 million from $27.9 million for the nine month periods ended September 30, 1996 and 1995, respectively. In addition, occupancy and furniture and equipment expenses increased by $1.4 million to $12.6 million from $11.2 million for the nine month periods ended September 30, 1996 and 1995, respectively. FDIC expense for the nine months ended September 30, 1996 includes an $8.6 million charge for the one-time special deposit insurance assessment passed by Congress and signed by President Clinton on September 30, 1996. This special assessment will be used to recapitalize the SAIF of the FDIC and bring it into parity with the BIF of the FDIC. As a result of this special assessment, First Banks' cost of deposit insurance for SAIF insured deposits is expected to decrease by approximately $2.0 million for the year ended December 31, 1997 in comparison to December 31, 1996, excluding the effect of the special assessment. The expected decrease in the cost of deposit insurance is based on an overall assessment rate for 1997 of 1.29 basis points and 6.44 basis points for each $100.00 of assessable BIF and SAIF deposits respectively, in comparison to the current assessment rate, of 23 basis points. First Banks currently has $1.2 billion of SAIF insured deposits. COMPARISON OF RESULTS OF OPERATIONS FOR YEARS ENDED 1995 AND 1994 NET INCOME. Net income for the year ended December 31, 1995 was $24.5 million, compared with $24.0 million earned in 1994. Although income increased in 1995, the substantial increase in total assets resulting from acquisitions caused the return on average assets to decrease to .70% for the year ended December 31, 1995, compared to 1.00% in 1994. This is indicative of the marginal operating results of certain of the acquired entities during the periods subsequent to their respective acquisition dates, as well as the cost of the funds used in their acquisitions and the expenses associated with amalgamating them into First Banks' systems and culture. As discussed previously, net interest income (expressed on a tax-equivalent basis) was $118.0 million, or 3.60%, of average interest-earning assets for 1995, compared to $93.0 million, or 4.07%, for 1994. PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses was $10.4 million and $1.9 million for the years ended December 31, 1995 and 1994, respectively, which was partially attributable to the increase in net loan charge-offs to $10.8 million in 1995 from $1.5 million in 1994. First Banks substantially increased its provision for possible loan losses in 1995 in recognition of the internal growth in the loan portfolio as well as its assessment of the risk inherent in the various portfolios of acquired entities. The unusually high level of recoveries of previously charged-off loans experienced in prior years decreased, contributing to the increase in the amount of net loan charge-offs for the year. At the same time, an increase in the amount of loans past due over 30 days, particularly in portfolios of recently acquired entities, and the desire to deal aggressively with loan problems as they arise, led to First Banks' decision to continue to strengthen its allowance for possible loan losses. 35 41 The increased level of net loan charge-offs and loans past due over 30 days primarily related to the portfolios of CCB and FBA, which were acquired by First Banks on March 15, 1995 and August 31, 1994, respectively. Net loan charge-offs for both CCB and FBA were approximately $9.2 million and $514,000 for the years ended December 31, 1995 and 1994, respectively. CCB's charge-offs resulted primarily from the application of First Banks' more aggressive approach to resolving loan problems within its consolidated portfolio. This approach has resulted in a reduction in the level of acquired problem loans to $23.7 million at December 31, 1995, from $38.5 million at March 15, 1995, the acquisition date. FBA has experienced an increase in its automobile loan charge-offs and automobile loans past due 30 days or more which resulted in a special provision of $3.7 million during the three month period ended September 30, 1995. The increase in charge-offs for FBA is partly due to changes in the practice and timing of recording such charge-offs. Previously, FBA charged-off the remaining balance of a loan after reducing that amount by the estimated value of the collateral even if the collateral was not yet in its possession. Commencing in the second quarter of 1995, FBA, consistent with First Banks' practice, charges off a loan when it becomes 120 days or more past due, regardless of whether the collateral is in its possession. When the collateral is subsequently received, the charged-off amount is adjusted for the value of the collateral. In addition, in an effort to further reduce the overall level of loan charge-offs and loans past due 30 days or more within this portfolio, FBA has increased its collection efforts and has implemented more stringent lending practices, including regular reviews of new loans originated and strict adherence to approved policies and practices. Contributing further to the increase in net loan charge-offs for 1995 in comparison to 1994 were reductions in the level of recoveries of previously charged-off loans. Recoveries of previously charged-off loans decreased by $300,000 to $4.9 million from $5.2 million for the years ended December 31, 1995 and 1994, respectively. The decrease reflects the reduced levels of loan charge-offs from $12.2 million for the year ended December 31, 1992, to $9.5 million and $6.7 million for the years ended December 31, 1993 and 1994, respectively, and the corresponding reduction in the opportunities to obtain recoveries. 36 42 NONINTEREST INCOME AND EXPENSE. The following table summarizes noninterest income and noninterest expense for the years ended December 31, 1995 and 1994, respectively.
INCREASE DECEMBER 31, (DECREASE) ---------------- --------------- 1995 1994 AMOUNT % ---- ---- ------ - (DOLLARS EXPRESSED IN THOUSANDS) Noninterest income: Service charges on deposit accounts and customer service fees................... $10,661 8,300 2,361 28.4% Credit card fees................................................................ 2,179 1,746 433 24.8 Loan servicing fees, net........................................................ 2,932 1,645 1,287 78.2 Gain (loss) on mortgage loans sold and held for sale: Originated for sale......................................................... (324) 126 (450) (357.1) Other loan sales............................................................ (284) -- (284) -- Trust and brokerage fees........................................................ 699 744 (45) (6.0) Net loss on sales of securities................................................. (866) (290) (576) (198.6) Gain on sale of mortgage loan servicing rights.................................. 3,843 -- 3,843 -- Loss on cancellation of interest rate swap agreement............................ (3,342) -- (3,342) -- Other........................................................................... 3,909 1,363 2,546 186.8 ------- ------ ------ Total noninterest income................................................ $19,407 13,634 5,773 42.3 ======= ====== ====== ====== Noninterest expense: Salaries and employee benefits.................................................. $37,941 28,337 9,604 33.9% Occupancy, net of rental income................................................. 8,709 5,260 3,449 65.6 Furniture and equipment......................................................... 6,852 5,209 1,643 31.5 Federal Deposit Insurance Corporation premiums.................................. 4,911 4,484 427 9.5 Postage, printing and supplies.................................................. 4,678 3,304 1,374 41.6 Data processing fees............................................................ 4,838 3,733 1,105 29.6 Legal, examination and professional fees........................................ 5,412 3,562 1,850 51.9 Credit card expenses............................................................ 2,490 2,455 35 1.4 Communications.................................................................. 2,476 1,816 660 36.3 Advertising..................................................................... 2,182 1,767 415 23.5 Losses and expenses on foreclosed real estate, net of gains..................... 1,302 792 510 64.4 Other........................................................................... 9,775 7,015 2,760 39.3 ------- ------ ------ Total noninterest expense............................................... $91,566 67,734 23,832 35.2 ======= ====== ====== ======
Noninterest income increased by $5.8 million to $19.4 million from $13.6 million for the year ended December 31, 1995 in comparison to December 31, 1994. The increase is attributable to mortgage banking activities, additional service charges and customer fee income, partially offset by sales of investment securities and residential mortgage loans. A more thorough discussion and analysis of the increases attributable to mortgage banking operations has been presented under ``--Mortgage Banking Activities.'' Increases of $4.1 million for the year ended December 31, 1995, in comparison to the same period in 1994, in service charges, customer service fees, credit card fees and loan servicing fees relate primarily to the aforementioned acquisitions. Offsetting the increase in noninterest income was a net loss on sales of securities of $866,000 and $290,000 for the years ended December 31, 1995 and 1994, respectively. The sales were executed to restructure acquired entities' investment portfolios, to provide funds for internal loan growth and to reduce borrowings. As previously discussed, First Banks sold $147 million of residential mortgage loans resulting in a net loss of $284,000 for the year ended December 31, 1995. The proceeds from the sale of these loans were used to repay certain 37 43 interest-bearing liabilities, which resulted in the termination of an interest rate swap agreement. The loss on cancellation of the interest rate swap agreement was $3.3 million. Other income for the year ended December 31, 1995 increased by $2.5 million to $3.9 million from $1.4 million for 1994. In addition to the increase associated with the overall growth of First Banks, other income for the year ended December 31, 1995 includes a $294,000 gain upon sale of bank building and related deposits, $179,000 of income from the termination of FBA's Directors' Retirement Plan and $802,000 of funds returned to FBA which were maintained in a trust. During 1990, FBA established a trust in lieu of officer and director liability insurance. Since such coverage is now available and in place through First Banks, the trust was terminated and the funds were returned to FBA. Noninterest expense was $91.6 million and $67.7 million for the years ended December 31, 1995 and 1994, respectively, representing an increase of $23.8 million. As a percentage of average assets, noninterest expenses were 2.62% and 2.81% for the years ended December 31, 1995 and 1994, respectively. To some extent, the year-to-year noninterest expenses are not comparable, due to the incremental operating expenses of acquired entities, which are accounted for under the purchase method of accounting, merger-related expenses and expenses associated with amalgamating acquired entities into First Banks' systems and culture. Salaries and employee benefits represent the largest category of noninterest expense, which totaled $37.9 million, or 41.4% of noninterest expense, for the year ended December 31, 1995. This compares to salaries and employee benefits of $28.3 million, or 41.8% of noninterest expense, for the year ended December 31, 1994. The $9.6 million increase is primarily attributable to the acquisitions completed during 1995, partially offset by staff reductions, occurring primarily in the third and fourth quarters of 1995, due to the effects of both acquisition-related synergy's and increasing economies of scale. Occupancy and furniture and equipment expenses increased by $5.1 million to $15.6 million from $10.5 million for the years ended December 31, 1995 and 1994, respectively. The increase is a result of First Banks' market expansion in central and northern Illinois, Dallas and Houston, Texas, and California. In addition, the increase in these expenses reflects the upgrading of systems to enhance both the quality of service to First Banks' expanding customer base and improving staff productivity. On August 8, 1995, the FDIC voted to reduce the deposit insurance premiums paid by most members of the BIF and to keep existing assessment rates intact for members of the SAIF. The reduction in the BIF rates were effective June 1, 1995, resulting in a reduction in First Banks' FDIC insurance premium expense by approximately $1.6 million for the year ended December 31, 1995. COMPARISON OF RESULTS OF OPERATIONS FOR YEARS ENDED 1994 AND 1993 NET INCOME. Net income for the year ended December 31, 1994 was $24.0 million, compared with $23.2 million earned in 1993. Net income for the year ended December 31, 1993 included a $766,000 benefit from the cumulative effect of a change in accounting principle due to the adoption of Statement of Financial Accounting Standards No. 109 Accounting for Income Taxes (``SFAS 109''). Net interest income (expressed on a tax-equivalent basis) was $93.0 million, or 4.07%, of average interest-earning assets for 1994, compared to $82.9 million, or 4.34%, for 1993. The increase in net income for 1994 is primarily attributable to the decrease in the provision for possible loan losses during 1994 in comparison to 1993. PROVISION FOR POSSIBLE LOAN LOSSES. The provision for possible loan losses was $1.9 million and $4.5 million for the years ended December 31, 1994 and 1993, respectively. Net loan charge-offs were $1.5 million and $4.4 million for the same periods. The decrease in the provision for possible loan losses during 1994, in comparison to 1993, is attributable to a decrease in loan charge-offs, increase in recoveries of loans previously charged-off and management's assessment of the required reserves based on the risks identified in the various loan portfolios of each Subsidiary Bank. 38 44 NONINTEREST INCOME AND EXPENSE. The following table summarizes noninterest income and noninterest expense for the years ended December 31, 1994 and 1993, respectively.
INCREASE DECEMBER 31, (DECREASE) ---------------- --------------- 1994 1993 AMOUNT % ---- ---- ------ - (DOLLARS EXPRESSED IN THOUSANDS) Noninterest income: Service charges on deposit accounts and customer service fees.................... $ 8,300 6,821 1,479 21.7% Credit card fees................................................................. 1,746 1,231 515 41.8 Loan servicing fees, net......................................................... 1,645 1,163 482 41.4 Gain (loss) on mortgage loans sold and held for sale............................. 126 (1,693) 1,819 -- Trust and brokerage fees......................................................... 744 752 (8) (1.1) Net (loss) gain on sales of securities........................................... (290) 155 (445) -- Other............................................................................ 1,363 1,524 (161) (10.6) ------- ------ ------ Total noninterest income................................................. $13,634 9,953 3,681 37.0 ======= ====== ====== ===== Noninterest expense: Salaries and employee benefits................................................... $28,337 22,087 6,250 28.3% Occupancy, net of rental income.................................................. 5,260 4,450 810 18.2 Furniture and equipment.......................................................... 5,209 4,783 426 8.9 Federal Deposit Insurance Corporation premiums................................... 4,484 4,289 195 4.5 Postage, printing and supplies................................................... 3,304 3,000 304 10.1 Data processing fees............................................................. 3,733 2,929 804 27.4 Legal, examination and professional fees......................................... 3,562 2,369 1,193 50.4 Credit card expenses............................................................. 2,455 1,843 612 33.2 Communications................................................................... 1,816 1,235 581 47.0 Advertising...................................................................... 1,767 1,313 454 34.6 Losses and expenses on foreclosed real estate, net of gains...................... 792 28 764 -- Other............................................................................ 7,015 5,105 1,910 37.4 ------- ------ ------ Total noninterest expense................................................ $67,734 53,431 14,303 26.8 ======= ====== ====== =====
Noninterest income increased by $3.6 million to $13.6 million from $10.0 million for the years ended December 31, 1994 and 1993, respectively. The increase is attributable to mortgage banking activities and additional service charges and customer fee income. A more thorough discussion and analysis of the increase attributable to mortgage banking operations has been presented under ``--Mortgage Banking Activities.'' The increased service charges and customer fee income is associated with the acquisitions completed during 1994 and improved product offerings to the existing customer base. Noninterest expense was $67.7 million and $53.4 million for the years ended December 31, 1994 and 1993, respectively, representing an increase of $14.3 million. The increase is primarily attributable to the five acquisitions completed during 1994 which affected virtually every aspect of noninterest expense. In addition to the general increase in expenses resulting from the acquisitions in 1994, credit card expenses increased primarily from the development and marketing costs associated with the introduction of the new variable rate credit card program. Similarly, legal, examination and professional fees increased to $3.6 million in 1994 from $2.4 million in 1993. The increase was primarily attributable to a $620,000 increase in regulatory examination and audit fees and a $574,000 increase in legal and other professional fees. The increase in regulatory examination and audit fees is primarily attributable to the increase in the organizational size of First Banks. The increase in legal and other professional fees is primarily associated with the increased use of such outside expertise in connection with the loan growth experienced during 1994 as well as the ongoing requirements of the existing loan portfolios. 39 45 LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES Interest earned on the loan portfolio is the primary source of income for the Subsidiary Banks. Loans, net of unearned discount, represent 77.1% of total assets as of September 30, 1996, compared to 75.7% and 72.0% at December 31, 1995 and 1994, respectively. Loans, net of unearned discount and excluding loans held for sale, increased by $10.2 million. This increase is primarily attributable to the corporate banking loan portfolio of First Banks which experienced an increase of $135.8 million during the nine months ended September 30, 1996. Offsetting this increase were reductions in residential real estate mortgage and consumer and installment loan portfolios of $108.5 million and $68.0 million, respectively, at September 30, 1996, in comparison to December 31, 1995. These changes reflect a restructuring of the loan portfolio which was initiated in early 1995. In accordance with that plan, First Banks has sold substantially all of its conforming residential mortgage production in the secondary mortgage market and has significantly reduced its origination of indirect automobile loans. For 1995, loan growth, net of unearned discount and excluding loans held for sale, was $646.0 million, compared to $798.9 million for 1994. The acquisitions completed during 1995 and 1994 provided loans of approximately $722 million and $349 million, or 63.0% and 43.0%, respectively, of the total acquired assets. Internally generated loan growth was $65.9 million and $356.1 million for 1995 and 1994, respectively. Offsetting the loan growth in 1995 was a sale of $147 million of residential mortgage loans. As previously discussed under ``--Financial Condition and Average Balances,'' as a result of the growth which had occurred in the residential mortgage loan portfolio, relative to other types of loans, and the effects which these loans have on the interest rate risk management process, First Banks concluded that its residential mortgage loan portfolio, as a percentage of the total loans, should be reduced. First Banks' lending strategy stresses quality, growth, and diversification by collateral, geography and industry. A common credit underwriting structure is in place throughout First Banks. The commercial lenders focus principally on small to middle-market companies. The retail lenders focus principally on residential loans, including home equity loans, automobile financing and other consumer financing needs arising out of First Banks' branch banking network. Commercial, financial, agricultural, and municipal and industrial development loans include loans that are made primarily on the strength of the borrowers' general credit standing and ability to generate repayment cash flows from income sources even though such loans and bonds may also be secured by real estate or other assets. Real estate construction and development loans, primarily residential properties, represent interim financing secured by real estate under construction. Real estate mortgage loans consist primarily of loans secured by single-family owner-occupied properties and various types of commercial properties whereby the income from the property is the intended source of repayment. Consumer and installment loans are loans to individuals and consist primarily of loans secured by automobiles. Loans held for sale are primarily fixed-rate residential loans pending sale in the secondary loan market in the form of a GNMA or FNMA mortgage-backed security and the excess production of ARMs sold directly to private third-party investors. 40 46 The following table shows the composition of the loan portfolio by major category and the percent of each to the total portfolio as of the dates presented:
DECEMBER 31, SEPTEMBER 30, ---------------------------------------------------------------------------------------- 1996 1995 1994 1993 1992 1991 ------------ ------------ ------------- ------------ ------------ ------------ AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT % ------ - ------ - ------ - ------ - ------ - ------ - (DOLLARS EXPRESSED IN THOUSANDS) Commercial, financial, agricultural and municipal and industrial development... $ 443,750 16.4% $ 364,018 13.5% $ 208,649 10.2% $ 160,211 12.8% $ 154,322 12.2% $ 181,978 13.7% Real estate construction and development... 259,607 9.6 209,802 7.8 122,912 6.0 76,049 6.1 77,208 6.2 94,118 7.1 Real estate mortgage: One- to four-family residential loans....... 1,082,705 40.0 1,199,491 44.4 967,129 47.1 584,868 46.6 606,847 48.1 625,801 47.1 Other real estate loans 579,902 21.3 512,264 19.0 332,075 16.1 243,382 19.4 189,267 15.0 188,623 14.2 Consumer and installment, net of unearned discount...... 343,375 12.7 413,609 15.3 422,461 20.6 189,851 15.1 234,552 18.5 237,116 17.9 ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- ----- Total loans, excluding loans held for sale... 2,709,339 100.0% 2,699,184 100.0% 2,053,226 100.0% 1,254,361 100.0% 1,262,196 100.0% 1,327,636 100.0% ===== ===== ===== ===== ===== ===== Loans held for sale....... 23,687 45,035 20,344 107,657 109,221 81,431 ---------- ---------- ---------- ---------- ---------- ---------- Total loans.. $2,733,026 $2,744,219 $2,073,570 $1,362,018 $1,371,417 $1,409,067 ========== ========== ========== ========== ========== ==========
Loans at December 31, 1995 mature as follows:
OVER ONE YEAR THROUGH FIVE YEARS OVER FIVE YEARS ------------------ ------------------- ONE YEAR FIXED FLOATING FIXED FLOATING OR LESS RATE RATE RATE RATE TOTAL -------- ----- -------- ----- -------- ----- (DOLLARS EXPRESSED IN THOUSANDS) Commercial, financial, agricultural and municipal and industrial development................................ $166,215 53,663 106,403 3,299 34,438 364,018 Real estate construction and development................ 141,524 5,068 58,139 173 4,898 209,802 Real estate mortgage.................................... 250,239 309,201 294,792 169,586 687,937 1,711,755 Consumer and installment, net of unearned discount...... 50,573 317,223 4,204 20,498 21,111 413,609 Loans held for sale..................................... 45,035 -- -- -- -- 45,035 -------- ------- ------- -------- -------- --------- Total loans......................................... $653,586 685,155 463,538 193,556 748,384 2,744,219 ======== ======= ======= ======== ======== =========
41 47 Following is a summary of loan loss experience for the nine months ended September 30, 1996 and 1995 and the five years ended December 31, 1995:
SEPTEMBER 30, DECEMBER 31, ----------------- --------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Allowance for possible loan losses, beginning of period............... $ 52,665 28,410 28,410 23,053 20,897 19,238 15,797 Acquired allowances for possible loan losses....................... -- 23,761 24,655 5,026 2,079 399 -- ---------- --------- --------- --------- --------- --------- --------- 52,665 52,171 53,065 28,079 22,976 19,637 15,797 ---------- --------- --------- --------- --------- --------- --------- Loans charged-off: Commercial, financial and agricultural................... (7,296) (1,811) (2,337) (813) (2,023) (3,885) (1,991) Real estate construction and development.................... (1,142) (253) (275) (119) (19) (424) (272) Real estate mortgage............. (6,943) (5,640) (5,948) (1,282) (2,212) (2,697) (2,310) Consumer and installment......... (5,922) (5,152) (7,060) (4,482) (5,277) (5,197) (3,076) ---------- --------- --------- --------- --------- --------- --------- Total.................... (21,303) (12,856) (15,620) (6,696) (9,531) (12,203) (7,649) ---------- --------- --------- --------- --------- --------- --------- Recoveries of loans previously charged-off: Commercial, financial and agricultural................... 1,099 945 1,714 831 1,191 1,083 410 Real estate construction and development.................... 376 479 666 401 241 34 -- Real estate mortgage............. 1,563 249 290 840 1,396 503 144 Consumer and installment......... 2,191 1,574 2,189 3,097 2,324 1,408 763 ---------- --------- --------- --------- --------- --------- --------- Total.................... 5,229 3,247 4,859 5,169 5,152 3,028 1,317 ---------- --------- --------- --------- --------- --------- --------- Net loans charged-off.... (16,074) (9,609) (10,761) (1,527) (4,379) (9,175) (6,332) ---------- --------- --------- --------- --------- --------- --------- Provision for possible loan losses... 8,774 8,449 10,361 1,858 4,456 10,435 9,773 ---------- --------- --------- --------- --------- --------- --------- Allowance for possible loan losses, end of period...................... $ 45,365 51,011 52,665 28,410 23,053 20,897 19,238 ========== ========= ========= ========= ========= ========= ========= Loans outstanding: Average.......................... $2,713,444 2,551,896 2,598,936 1,616,634 1,340,641 1,416,597 1,360,169 End of period.................... 2,733,026 2,748,715 2,744,219 2,073,570 1,362,018 1,371,417 1,409,067 End of period, excluding loans held for sale.................. 2,709,339 2,704,047 2,699,184 2,053,226 1,254,361 1,262,196 1,327,636 ========== ========= ========= ========= ========= ========= ========= Ratio of allowance for possible loan losses to loans outstanding: Average.................... 1.67% 2.00% 2.03% 1.76% 1.72% 1.48% 1.41% End of period.............. 1.66 1.86 1.92 1.37 1.69 1.52 1.37 End of period, excluding loans held for sale...... 1.67 1.89 1.95 1.38 1.84 1.66 1.45 Ratio of net charge-offs to average loans outstanding.. 0.79 0.50 0.41 0.09 0.33 0.65 0.47 ==== ==== ==== ==== ==== ==== ==== Allocation of allowance for possible loan losses at end of period: Commercial, financial, agricultural and municipal and industrial development..... $ 13,408 12,216 12,501 4,160 3,531 2,912 3,431 Real estate construction and development.................... 5,598 4,371 4,665 2,440 2,867 2,895 3,529 Real estate mortgage............. 13,798 17,125 19,849 8,051 6,712 4,186 4,290 Consumer and installment......... 6,740 10,523 10,016 6,225 2,925 2,428 1,778 Unallocated...................... 5,821 6,776 5,634 7,534 7,018 8,476 6,210 ---------- --------- --------- --------- --------- --------- --------- Total.................... $ 45,365 51,011 52,665 28,410 23,053 20,897 19,238 ========== ========= ========= ========= ========= ========= ========= Percent of categories to loans, net of unearned discount: Commercial, financial and agricultural................... 15.79% 11.56% 12.81% 9.40% 10.83% 10.19% 11.68% Municipal and industrial development.................... .44 .48 0.46 0.66 0.93 1.06 1.23 Real estate construction and development.................... 9.50 7.40 7.65 5.93 5.58 5.63 6.68 Real estate mortgage............. 60.84 63.41 62.49 62.66 60.81 58.05 57.80 Consumer and installment......... 12.56 15.52 14.95 20.37 13.94 17.10 16.83 Loans held for sale.............. .87 1.63 1.64 0.98 7.91 7.97 5.78 ---------- --------- --------- --------- --------- --------- --------- Total..................... 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% ========== ========= ========= ========= ========= ========= ========= - ---------- The ratios for the nine month periods are annualized.
42 48 Following is a summary of nonperforming assets by category:
SEPTEMBER 30, DECEMBER 31, ------------------ --------------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Commercial, financial and agricultural: Nonaccrual...................... $ 4,867 4,261 9,930 2,540 4,278 2,707 1,703 Restructured terms.............. 142 -- -- 60 60 122 314 Real estate construction and development-- Nonaccrual...................... 2,093 2,175 2,002 1,448 70 89 -- Real estate mortgage: Nonaccrual...................... 25,669 32,476 27,159 11,637 7,546 7,292 7,443 Restructured terms.............. 106 -- -- 222 227 568 772 Consumer and installment: Nonaccrual...................... 508 331 300 293 49 312 82 Restructured terms.............. 7 -- -- -- -- -- 68 ---------- --------- --------- --------- --------- --------- --------- Total nonperforming loans................. 33,392 39,423 39,391 16,200 12,230 11,090 10,382 Other real estate................... 10,298 8,783 7,753 6,740 2,529 6,938 12,282 ---------- --------- --------- --------- --------- --------- --------- Total nonperforming assets.............. $ 43,690 48,026 47,144 22,940 14,759 18,028 22,664 ========== ========= ========= ========= ========= ========= ========= Loans, net of unearned discount..... $2,733,026 2,748,715 2,744,219 2,073,570 1,362,018 1,371,417 1,409,067 ========== ========= ========= ========= ========= ========= ========= Loans past due 90 days or more and still accruing................ $ 5,988 5,314 8,474 1,885 1,199 3,074 5,637 ========== ========= ========= ========= ========= ========= ========= Allowance for possible loan losses to loans................... 1.66% 1.86% 1.92% 1.37% 1.69% 1.52% 1.37% Nonperforming loans to loans........ 1.22 1.43 1.44 0.78 0.90 0.81 0.74 Allowance for possible loan losses to nonperforming loans............................. 135.86 129.99 133.70 175.37 188.50 188.43 185.30 Nonperforming assets to loans and foreclosed assets................. 1.59 1.74 1.71 1.10 1.08 1.31 1.59 ==== ==== ==== ==== ==== ==== ====
As of September 30, 1996, December 31, 1995 and 1994, $24.5 million, $47.9 million and $18.4 million, respectively, of loans not included in the table above were identified by management as having potential credit problems which raised doubts as to the ability of the borrowers to comply with the present loan repayment terms. First Banks' credit management policy and procedures focuses on identifying and managing credit exposure. First Banks utilizes a lender-initiated system of rating credits, which is subsequently tested by internal loan review and bank regulators. Adversely rated credits are included on a watch list, and are reviewed at the bank level and centrally at least every four months. Loans may be added to the watch list for reasons which are temporary and correctable, such as the absence of current financial statements of the borrower, or a deficiency in loan documentation. Other loans are added as soon as any problem is detected which might affect the borrower's ability to meet the terms of the loan. This could be initiated by the delinquency of a scheduled loan payment, a deterioration in the borrower's financial condition identified in a review of periodic financial statements, a decrease in the value of the collateral securing the loan, or a change in the economic environment within which the borrower operates. In addition to the rating system, credit administration coordinates the periodic credit reviews and provides management with information on risk levels, trends, delinquencies and portfolio concentrations. The allowance for possible loan losses is based on past loan loss experience, on First Banks management's evaluation of the quality of the loans in the portfolio and on the anticipated effect of national and local economic conditions relative to the ability of loan customers to repay. Each quarter, the allowance for possible loan losses is reviewed relative to the watch list and other data to determine its adequacy. The provision for possible loan losses is management's estimate of the amount necessary to maintain the allowance at a level consistent with this evaluation. As adjustments to the allowance for possible loan losses are considered necessary, they are reflected in the consolidated statements of income. First Banks does not lend funds for foreign loans. Additionally, First Banks does not have any concentrations of loans exceeding 10% of total loans which are not otherwise disclosed in the loan portfolio composition table. First Banks does not have a material amount of interest-bearing assets which would have been included in nonaccrual, past due or restructured loans if such assets were loans. 43 49 INVESTMENT SECURITIES Effective December 31, 1993, First Banks adopted SFAS 115, Accounting for Certain Investments in Debt and Equity Securities (``SFAS 115''), for which the cumulative effect was recorded on the consolidated balance sheet on that date. Under SFAS 115, First Banks is required to classify debt and equity securities into one of three categories. Held to maturity includes debt securities which First Banks has the positive intent and ability to hold to maturity. Trading includes debt and equity securities purchased and held principally for the purpose of selling them in the near term. Available for sale includes debt securities not classified as held to maturity or trading and equity investments not classified as trading, and which, therefore, are investments which First Banks has no plans to sell in the near term but which may be sold in the future under different circumstances. As of December 31, 1993, First Banks conducted an initial evaluation of the investment security portfolio and practices for purposes of allocation into one of the three categories. First Banks does not engage in the trading of securities as defined by SFAS 115 and, accordingly, there are no securities designated as trading. This evaluation further concluded the composition of debt securities eligible for inclusion in the held-to-maturity portfolio should be limited to debt securities purchased to enhance overall profitability of First Banks. The remaining securities were allocated as available for sale. While First Banks plans to hold available-for-sale securities for an indefinite period, management may dispose of these securities as part of its asset/liability strategy, in response to changing interest rates, to adjust for liquidity requirements in response to loan demand or other similar factors. The available-for-sale portfolio also includes investments in equity securities since it was not First Banks' intent to purchase these securities principally for the purpose of selling them in the near term. As a result of this evaluation, debt securities with an amortized cost of $242.0 million were classified as held-to-maturity securities, and debt and equity securities with an amortized cost of $283.6 million were classified as available-for-sale securities. A market valuation account was established for the available-for-sale securities of $5.5 million, to increase the recorded balance of such securities at December 31, 1993 to their fair value on that date; a deferred tax liability of $1.9 million was recorded to reflect the tax effect of the market valuation account; and the net increase resulting from the market valuation adjustment at December 31, 1993 was recorded as a separate component of stockholders' equity. Subsequent to December 31, 1993, the federal banking and thrift regulatory agencies concluded the impact of applying SFAS 115 would not be considered part of the capital base for purposes of calculating regulatory capital compliance. In addition, state banking regulatory agencies have also elected to exclude the impact of applying SFAS 115, except for the California State Banking Department which includes the impact of SFAS 115. In October 1995, the FASB issued a Special Report, A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities (``Special Report''). The Special Report was issued in response to various questions that have been raised as a result of initially applying SFAS 115 including the regulatory treatment for purposes of calculating capital compliance. The Special Report also provided an enterprise the opportunity to reassess the appropriateness of the classifications of all investment securities without bringing into question the intent of an enterprise to hold other debt securities to maturity. Such reassessment had to occur by December 31, 1995. In light of the Special Report and the regulatory capital treatment of the impact of SFAS 115, First Banks again reviewed its investment securities portfolios and practices. First Banks concluded the economic benefits available to First Banks by increasing the types of securities classified as available for sale exceeded the disadvantages of reflecting market value changes of such investment securities, net of deferred income taxes, as a component of stockholders' equity. The primary benefits available to First Banks within its available-for-sale portfolio, in contrast to the held-to-maturity portfolio, are: (1) the ability to provide and absorb funds based on the liquidity position of First Banks; (2) the ability to reposition the interest rate risk of the portfolio to respond to changes in the overall interest rate risk profile of First Banks; and (3) the ability to sell selected securities in response to favorable market conditions. Accordingly, during December 1995, First Banks concluded the investment securities portfolios would be classified as available for sale except for investments in state and political subdivisions and certain securities of FCB. Investments in state and political subdivisions are generally limited to communities served by First Banks and would be held to maturity under First Banks' on-going support of the community. The classifications of FCB's investment securities remain as originally classified by FCB reflecting the investment strategies of that bank's management. As of December 31, 1995, debt securities with an amortized cost of $174.1 million were reclassified from held to maturity to available for sale. The market valuation account was adjusted by $2.7 million, representing a decrease in the recorded balance of such securities at December 31, 1995 to their fair value on that date, the related deferred tax 44 50 asset of $950,000 was recorded to reflect the tax effect of the market valuation account adjustment, and the net decrease resulting from the reclassification at December 31, 1995 of $1.8 million was reflected within the separate component of stockholders' equity. The following table shows the composition of the investment security portfolio by major category as of the dates presented:
DECEMBER 31, SEPTEMBER 30, ---------------------- 1996 1995 1994 1993 ---- ---- ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Available For Sale U.S. Treasuries............................................. $ 82,466 44,012 46,036 108,498 U.S. Government Agencies and Corporations: Mortgage backed......................................... 197,124 235,496 173,368 30,072 Other................................................... 160,431 160,297 98,289 127,993 Other securities............................................ 781 3,303 -- -- Federal Home Loan Bank and Federal Reserve Bank stock....... 21,167 18,173 25,883 6,713 Equity investments in other financial institutions.......... 11,306 10,510 12,382 15,889 -------- ------- ------- ------- Total available for sale........................ 473,275 471,791 355,958 289,165 -------- ------- ------- ------- Held to Maturity U.S. Treasuries............................................. 3,004 7,018 10,251 -- U.S. Government Agencies and Corporations: Mortgage-backed......................................... -- -- 178,434 190,920 Other................................................... -- 3,940 9,767 5,000 State and Political Subdivisions............................ 22,506 25,574 27,237 21,539 Other....................................................... -- -- 6,231 24,524 -------- ------- ------- ------- Total held to maturity.......................... 25,510 36,532 231,920 241,983 -------- ------- ------- ------- Total investment securities..................... $498,785 508,323 587,878 531,148 ======== ======= ======= =======
DEPOSITS Deposits are the primary source of funds for the Subsidiary Banks. First Banks' deposits consist principally of core deposits from its Subsidiary Banks' local market areas. The following table sets forth the distribution of First Banks' deposit accounts at the dates indicated and the weighted average nominal interest rates on each category of deposit:
SEPTEMBER 30, 1996 ------------------------ PERCENT OF AMOUNT DEPOSITS RATE ------ -------- ---- (DOLLARS EXPRESSED IN THOUSANDS) Demand deposits.................... $ 393,401 12.9% --% Interest-bearing demand deposits... 289,535 9.5 1.77 Savings deposits................... 664,142 21.7 3.12 Time deposits of $100,000 or more............................. 149,695 4.9 5.34 Other time deposits................ 1,557,968 51.0 5.55 ---------- ----- ==== Total deposits................. $3,054,741 100.0% ========== ===== DECEMBER 31, ------------------------------------------------------------------------------------ 1995 1994 1993 ------------------------ ------------------------ ------------------------ PERCENT PERCENT PERCENT OF OF OF AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE ------ -------- ---- ------ -------- ---- ------ -------- ---- (DOLLARS EXPRESSED IN THOUSANDS) Demand deposits.................... $ 389,658 12.2% --% $ 290,039 12.4% --% $ 224,041 12.6% --% Interest-bearing demand deposits... 307,584 9.7 1.89 268,212 11.5 2.04 223,297 12.5 1.75 Savings deposits................... 690,902 21.7 3.16 538,027 23.1 3.03 446,294 25.1 2.63 Time deposits of $100,000 or more............................. 201,025 6.3 5.69 113,381 4.9 4.87 49,874 2.8 3.81 Other time deposits................ 1,594,522 50.1 5.72 1,123,485 48.1 4.84 835,883 47.0 4.15 ---------- ----- ==== ---------- ----- ==== ---------- ----- ==== Total deposits................. $3,183,691 100.0% $2,333,144 100.0% $1,779,389 100.0% ========== ===== ========== ===== ========== =====
CAPITAL Risk-based capital guidelines for financial institutions are designed to relate regulatory capital requirements to the risk profiles of the specific institutions and to provide more uniform requirements among the various regulators. First Banks and the Subsidiary Banks are required to maintain a minimum risk-based capital to risk-weighted assets ratio of 8.00%, with at least 4.00% being ``Tier 1'' capital. Tier 1 capital is composed of common stockholders' equity, 45 51 qualifying perpetual preferred stock instruments (including instruments such as the Preferred Securities) and minority interests in equity accounts of consolidated subsidiaries, less intangibles associated with the purchase of subsidiaries, net losses on financial futures contracts deferred for financial reporting purposes, and the excess of net deferred tax assets which is more fully described below. Tier 1 capital also excludes the fair value adjustment for available for sale investment securities. In addition, a minimum leverage ratio (Tier 1 capital to total assets) of 3.00% plus an additional cushion of 100 to 200 basis points is expected. First Banks' preferred stock qualifies as Tier 1 capital under the risk-based guidelines. At September 30, 1996 and December 31, 1995 and 1994, First Banks' and the Subsidiary Banks' capital ratios were as follows:
RISK-BASED CAPITAL RATIOS -------------------------------------------------- TOTAL TIER 1 LEVERAGE RATIO ------------------------ ------------------------ ------------------------- SEPTEMBER DECEMBER 31, SEPTEMBER DECEMBER 31, SEPTEMBER DECEMBER 31 30, ------------- 30, ------------- 30, ------------- 1996 1995 1994 1996 1995 1994 1996 1995 1994 --------- ---- ---- --------- ---- ---- --------- ---- ---- First Banks........................ 9.56% 9.34% 12.68% 8.23% 7.77% 11.37% 6.13% 5.32% 7.54 First Bank (Missouri).............. 10.26 10.03 10.66 9.01 8.78 9.41 7.22 7.01 7.57 First Bank (Illinois).............. 11.40 12.91 14.95 10.15 11.66 13.70 7.15 7.22 8.00 First Bank FSB................. 10.15 11.90 15.34 8.90 10.80 14.31 6.00 6.74 8.24 CCB Bancorp, Inc............... 18.86 15.25 -- 17.58 13.96 -- 11.96 9.58 -- FBA................................ 13.99 11.69 17.50 12.73 10.43 16.28 9.64 8.38 11.97 FCB............................ 6.61 4.99 -- 5.33 3.68 -- 3.95 2.14 -- St. Charles Federal............ 14.80 18.95 17.90 14.17 18.46 17.62 7.69 8.73 7.24 - --------- St. Charles Federal merged with First Bank FSB on December 12, 1996. CCB was acquired by First Banks on March 15, 1995. First Commercial was acquired by First Banks on August 23, 1995. First Banks' investment in First Commercial was exchanged into FCB common stock on December 28, 1995.
On April 1, 1995, a new capital regulation became effective which limits the amount of net deferred tax assets that First Banks and the Subsidiary Banks may include in regulatory capital. A deferred tax asset arises as a result of an expense recorded currently in the financial statements which will not become a tax deduction until some time in the future, such as the allowance for possible loan losses, income which may be recognized for tax purposes before it is recorded in the financial statements, or tax benefits which may be available in the future for which there is no corresponding financial statement benefit, such as a tax loss carryforward. The change in regulation limits the amount of net deferred tax assets, excluding any amounts applicable to SFAS 115, that are included in Tier 1 capital to the lesser of the amount of net deferred tax assets that the entity expects to realize over the next twelve month period or 10% of its Tier 1 capital. The new capital regulation effects regulatory capital of First Banks, First Bank FSB and FBA as their net deferred tax assets, as adjusted, exceed the lesser of the amount expected to be realized over the next twelve month period or 10% of Tier 1 capital. The amounts expected to be realized over the next twelve months for First Banks, First Bank FSB and FBA have been estimated to be at $12.2 million, $1.2 million and $2.6 million at September 30, 1996 and $13.8 million, $1.4 million and $1.8 million at December 31, 1995, respectively, and are included in Tier 1 capital as these amounts are less than 10% of their Tier 1 capital. The remaining amount of the net deferred tax assets, as adjusted, of $20.5 million, $12.6 million and $9.6 million at September 30, 1996, and of $21.3 million, $13.7 million and $11.4 million at December 31, 1995, for First Banks, First Bank FSB and FBA, respectively, have been subtracted from stockholders' equity in arriving at Tier 1 capital at September 30, 1996 and December 31, 1995. Historically, First Banks accumulates capital to support its acquisitions by retaining most of its earnings. Relatively small dividends are paid on the Class A Preferred Stock and the Class B Preferred Stock, totaling $524,000 for the nine months ended September 30, 1996 and 1995, and $786,000 and $785,000 for the years ended December 31, 1995 and 1994, respectively. The dividends paid on the Class C Preferred Stock were $3.71 million for the nine months ended September 30, 1996 and 1995, and $4.95 million for the years ended December 31, 1995 and 1994. First Banks has never paid, and has no present intention to pay, dividends on the Common Stock. FCB's capital, for regulatory purposes, has improved to ``undercapitalized'' at September 30, 1996 from ``significantly undercapitalized'' at December 31, 1995 as a result of the offering of newly-issued common stock as more fully described in note 21 to the Consolidated Financial Statements. The risk based total and Tier 1 capital ratios 46 52 and leverage ratio for FCB's subsidiary bank, First Commercial, were 12.65%, 11.37% and 8.41%, respectively, at September 30, 1996 and is considered ``well capitalized'' for regulatory purposes. As a result of substantial losses, incurred in prior years, particularly related to its portfolio of commercial real estate and construction loans, FCB is operating under the provisions of a Memorandum of Understanding (the ``MOU'') from the Federal Reserve Bank of San Francisco and First Commercial is subject to Capital Impairment Orders of the California State Banking Department (the ``Impairment Orders''). The MOU places certain restrictions on the operations of FCB, particularly with respect to the payment of dividends and the receipt of dividends from First Commercial, the incurrence of expenses and the reduction of problem assets of First Commercial. Management of FCB believes it is in compliance with the provisions of the MOU. Because the underlying Cease and Desist Order of the FDIC and the Memorandum of Understanding of the California State Banking Department with respect to FCB's subsidiary bank, First Commercial, have been terminated, management anticipates that the MOU will be terminated in the near future. The Impairment Orders result from a provision of California State Banking Regulations limiting the relationship of the retained deficit of a bank to its contributed capital. Because the retained deficit of First Commercial exceeds that limitation, it is subject to the Impairment Orders. First Commercial has applied to the California State Banking Department for permission to record a ``quasi-reorganization,'' which would result in adjusting its asset and liabilities to current fair values and offsetting its retained deficit against its contributed capital. Management anticipates that its application will be approved in the near future, allowing it to record the quasi-reorganization, at which time the Impairment Orders will be terminated. LIQUIDITY The liquidity of First Banks and the Subsidiary Banks is the ability to maintain a cash flow which is adequate to fund operations, service its debt obligations and meet other commitments on a timely basis. The Subsidiary Banks' primary sources for liquidity are customer deposits, loan payments, maturities and sales of investments and earnings. In addition, First Banks and Subsidiary Banks may avail themselves of more volatile sources of funds through issuance of certificates of deposit in denominations of $100,000 or more, federal funds borrowed, securities sold under agreements to repurchase, borrowings from the Federal Home Loan Banks (FHLB) and other borrowings, including First Banks' $90 million credit agreement. The aggregate funds acquired from those sources were $344.9 million, $359.2 million and $400.7 million at September 30, 1996, December 31, 1995 and 1994, respectively. At September 30, 1996 and December 31, 1995, First Banks' more volatile sources of funds mature as follows:
SEPTEMBER 30, 1996 DECEMBER 31, 1995 ------------------ ----------------- (DOLLARS EXPRESSED IN THOUSANDS) Three months or less........................................ $178,871 118,568 Over three months through six months........................ 35,839 35,589 Over six months through twelve months....................... 100,904 128,239 Over twelve months.......................................... 29,242 76,827 -------- ------- Total............................................... $344,856 359,223 ======== =======
Management believes the earnings of its Subsidiary Banks will be sufficient to provide funds for growth and to permit the distribution of dividends to First Banks sufficient to meet its operating and debt service requirements both on a short-term and long-term basis and to pay the dividends on the Class C Preferred Stock and the Distributions on the Preferred Securities. EFFECT OF NEW ACCOUNTING STANDARDS First Banks adopted the provisions of Statement of Financial Accounting Standards (``SFAS'') 114, Accounting by Creditors for Impairment of a Loan, and SFAS 118, Accounting by Creditors for Impairment of a Loan--Income Recognition and Disclosures SFAS 118, which amends SFAS 114, on January 1, 1995. SFAS 114 defines the recognition criterion for loan impairment and the measurement methods for certain impaired loans and loans whose terms have been modified in troubled-debt restructurings. SFAS 118 amends SFAS 114 to allow a creditor to use existing methods for recognizing interest income on an impaired loan. The implementation of these statements did not have a material effect on First Banks' financial position and resulted in no additional provision for possible loan losses. First Banks adopted the provisions of SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of SFAS 121, on January 1, 1996. SFAS 121 established accounting standards for 47 53 the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. SFAS 121 requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the entity should estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. Otherwise, an impairment loss is not recognized. Measurement of an impairment loss for long-lived assets and identifiable intangibles that an entity expects to hold and use should be based on the fair value of the asset. First Banks adopted the provisions of SFAS 122, Accounting for Mortgage Servicing Rights (``SFAS 122''), on January 1, 1996. SFAS 122 amends SFAS 65, Accounting for Certain Mortgage Banking Activities. SFAS 122 requires that a mortgage banking enterprise recognize as separate assets rights to service mortgage loans for others, regardless of how those servicing rights are acquired. A mortgage banking enterprise that acquires mortgage servicing rights through either the purchase or origination of mortgage loans and sells or securitizes those loans with servicing rights retained should allocate the total cost of the mortgage loans to the servicing rights and the loans (without the mortgage servicing rights), based on their relative fair values if it is practicable to estimate those fair values. If it is not practicable to estimate the fair values of the mortgage servicing rights and the mortgage loans (without the mortgage servicing rights), the entire cost of purchasing or originating the loans should be allocated to the mortgage loans (without the mortgage servicing rights) and no cost should be allocated to the mortgage servicing rights. SFAS 122 requires that a mortgage banking enterprise assess its capitalized mortgage servicing rights for impairment based on the fair value of those rights. The entity should stratify its mortgage servicing rights that are capitalized after the adoption of this statement based on one or more of the predominate risk characteristics of the underlying loans. Impairment should be recognized through a valuation allowance for each impaired stratum. The implementation of SFAS 121 and SFAS 122 did not have a material effect on First Banks' consolidated financial statements. In June 1995, the FASB issued SFAS 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities (``SFAS 125''). SFAS 125 established accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities. The standards established by SFAS 125 are based on consistent applications of a financial-components approach that focuses on control. Under that approach, after a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered, and derecognizes liabilities when extinguished. This statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS 125 is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after December 31, 1996, and is to be applied prospectively. Earlier or retroactive application is not permitted. First Banks does not believe the implementation of SFAS 125 will have a material effect on its consolidated financial position or results of operation. EFFECTS OF INFLATION Financial institutions are less affected by inflation than other types of companies. Financial institutions make relatively few significant asset acquisitions which are directly affected by changing prices. Instead, the assets and liabilities are primarily monetary in nature. Consequently, interest rates are more significant to the performance of financial institutions than the effect of general inflation levels. While a relationship exists between the inflation rate and interest rates, First Banks believes this is generally manageable through its interest rate risk management program. 48 54 BUSINESS GENERAL First Banks, incorporated in Missouri in 1978, is a registered bank holding company under the BHCA and is headquartered in St. Louis, Missouri. At September 30, 1996, First Banks had $3.5 billion in total assets, $2.7 billion in total loans, $3.1 billion in total deposits, and $244 million in total shareholders' equity. First Banks operates primarily through two wholly-owned bank subsidiaries, one wholly-owned thrift subsidiary, one wholly-owned bank holding company subsidiary and two majority-owned bank holding company subsidiaries. First Banks' wholly-owned Subsidiary Banks are First Bank (Missouri), First Bank (Illinois), First Bank FSB and FB&T, which First Banks owns indirectly through its wholly-owned subsidiary, CCB. First Banks' majority-owned bank holding company subsidiaries are FBA, in which First Banks currently holds a 67.30% equity interest, and FCB, in which First Banks currently holds a 61.46% equity interest (excluding the effect of the conversion of certain debentures owned by First Banks). FCB owns all of the capital stock of First Commercial. FBA indirectly owns all of the capital stock of BTX and Sunrise. Through the 126 locations of its Subsidiary Banks, First Banks offers a broad range of commercial and personal banking services including certificate of deposit accounts, individual retirement and other time deposit accounts, checking and other demand deposit accounts, interest checking accounts, savings accounts, and money market accounts. Loans include commercial, financial, agricultural, municipal and industrial development, real estate construction and development, commercial and residential real estate, consumer and installment loans. Other financial services include mortgage banking, discount brokerage, credit-related insurance, automatic teller machines, safe deposit boxes, and trust services offered by certain Subsidiary Banks. First Banks' management philosophy is to centralize overall corporate policies, procedures, and administrative functions and to provide operational support functions for the Subsidiary Banks. Primary responsibility for managing the Subsidiary Banks rests with each of the officers and directors of the respective Subsidiary Banks. The following table lists, as of September 30, 1996, the Subsidiary Banks (or their intermediate holding company parent) ranked by asset size:
LOANS, NET OF NUMBER OF TOTAL UNEARNED TOTAL SUBSIDIARY BANKS LOCATIONS ASSETS DISCOUNT DEPOSITS - -------------------- --------- ------ ------------- -------- (DOLLARS EXPRESSED IN THOUSANDS) First Bank FSB................................ 39 $1,013,966 841,206 817,133 First Bank (Missouri)............................. 31 837,561 655,790 733,230 First Bank (Illinois)............................. 27 832,082 595,856 763,945 CCB............................................... 13 410,970 308,109 338,044 FBA............................................... 6 271,700 172,737 229,418 FCB............................................... 6 148,980 94,299 133,656 St. Charles Federal........................... 1 76,313 65,069 60,320 - -------- Does not include Sunrise, which was acquired on November 1, 1996. St. Charles Federal merged with First Banks FSB on December 12, 1996.
In addition to the Subsidiary Banks, First Banks owns FirstServ, Inc. which provides data processing services and operational support for First Banks and its subsidiaries, through a management services agreement with an affiliated entity, First Services, L.P. First Services, L.P. is a limited partnership which is indirectly owned by First Banks' voting shareholders. For a discussion of First Banks' recent acquisitions, see ``Management's Discussion and Analysis--Acquisitions.'' 49 55 MARKET AREAS As of September 30, 1996, the Subsidiary Banks' 123 banking facilities were located throughout eastern Missouri, Illinois, California and Texas. First Banks' primary market area is the St. Louis, Missouri metropolitan area. First Banks' second and third largest markets are central and southern Illinois and southern and northern California, respectively. First Banks also has locations in the Houston, Dallas and McKinney, Texas metropolitan areas, rural eastern Missouri and the greater Chicago, Illinois metropolitan area. The following table lists the market areas in which the Subsidiary Banks operate by number of locations and deposits as of September 30, 1996 updated to reflect the acquisition of Sunrise on November 1, 1996:
TOTAL DEPOSITS DEPOSITS AS PERCENT NO. OF GEOGRAPHIC AREA (IN MILLIONS) OF TOTAL LOCATIONS --------------- ------------- ---------- --------- St. Louis, Missouri Metropolitan Area......... $ 664.2 21.1% 27 Rural Eastern Missouri........................ 321.7 10.2 16 Central and Southern Illinois................. 969.8 30.8 40 Northern Illinois............................. 397.9 12.6 15 Texas......................................... 229.4 7.3 6 Southern and Central California............... 313.4 10.0 11 Northern California........................... 250.4 8.0 11 -------- ----- --- Total Deposits................................ $3,146.8 100.0% 126 ======== ===== === - -------- First Bank (Missouri), First Bank (Illinois) and First Bank FSB operate in the St. Louis metropolitan market area. First Bank FSB and First Bank (Missouri) operate in rural eastern Missouri. First Bank FSB and First Bank (Illinois) operate in central and southern Illinois outside of the St. Louis metropolitan market area. First Bank FSB operates facilities in northern Illinois, including Chicago. BTX operates in the Houston, Dallas and McKinney metropolitan areas. FB&T operates in the greater Los Angeles metropolitan area, including Orange County, California. Three of the branches are also located in Santa Barbara County, California. FB&T, First Commercial and Sunrise (as of November 1, 1996) operate in northern California, including the greater San Francisco, San Jose and Sacramento metropolitan market areas.
LENDING ACTIVITIES Lending activities are conducted pursuant to a written loan policy which has been adopted by each of the Subsidiary Banks. Each loan officer has a defined lending authority and loans made by each such officer must be reviewed by a loan committee of the banking facility at which the loan officer is located, the Subsidiary Bank's board of directors or the Central Finance Committee of First Banks, depending upon the amount of the loan request. Loan requests for amounts in excess of $4 million, and loan requests for amounts in excess of $1 million where the aggregate indebtedness of the borrower exceeds $8 million, must also be approved by First Banks' Chairman of the Board or Chief Financial Officer. Loans generally are limited to borrowers residing or doing business in the immediate market area of the originating Subsidiary Bank. First Banks' policy is for each Subsidiary Bank to meet the quality loan demand and credit needs of its local community before it considers the purchase of loan participations from an affiliate. First Banks offers commercial, financial, agricultural, municipal and industrial development, real estate construction and development, commercial and residential real estate, consumer and installment loans. Additional information regarding First Banks' loan portfolio is included under ``Management's Discussion and Analysis--Loans and Allowance for Possible Loan Losses.'' 50 56 MORTGAGE BANKING OPERATIONS First Banks provides mortgage banking services through the First Bank Mortgage division of First Bank FSB (``First Bank Mortgage''). First Bank Mortgage has originated, underwritten, closed and serviced a full line of residential mortgage loan products, both for the portfolios of First Bank FSB and First Banks' other Subsidiary Banks and for resale in the secondary mortgage market. First Bank Mortgage has also acquired loans originated by the other Subsidiary Banks or by unrelated entities, which it has underwritten and serviced. See, ``Management's Discussion and Analysis--Mortgage Banking Activities,'' for a discussion of possible changes to the business of First Bank Mortgage. INVESTMENT PORTFOLIO First Banks has established a written investment policy which has been adopted by the Subsidiary Banks and is reviewed annually. The investment policy identifies investment criteria and states specific objectives in terms of risk, interest rate sensitivity, and liquidity. The investment policy directs management of the Subsidiary Banks to consider, among other criteria, the quality, term, and marketability of the securities acquired for their respective investment portfolios. First Banks does not engage in the practice of trading securities for the purpose of generating portfolio gains. The investment portfolio composition is included in the Notes to Consolidated Financial Statements. See, also, ``Management's Discussion and Analysis--Investment Securities.'' DEPOSITS First Banks' deposits consist principally of core deposits from the local market areas of the Subsidiary Banks. The Subsidiary Banks currently do not hold brokered deposits, except for any such deposits which acquired institutions may have had prior to their acquisition by First Banks. A table summarizing the distribution of First Banks' deposit accounts and the weighted average nominal interest rates on each category of deposits for the three years ending December 31, 1995 and for the nine months ended September 30, 1996 is included under ``Management's Discussion and Analysis--Deposits.'' COMPETITION AND BRANCH BANKING The activities in which the Subsidiary Banks engage are highly competitive. Those activities and the geographic markets served involve primarily competition with other banks, some of which are affiliated with large bank holding companies. Competition among financial institutions is based upon interest rates offered on deposit accounts, interest rates charged on loans and other credit and service charges, the quality of services rendered, the convenience of banking facilities and, in the case of loans to large commercial borrowers, relative lending limits. In addition to competing with other banks within their primary service areas, the Subsidiary Banks also compete with other financial intermediaries, such as credit unions, industrial loan associations, securities firms, insurance companies, small loan companies, finance companies, mortgage companies, real estate investment trusts, certain governmental agencies, credit organizations and other enterprises. Additional competition for depositors' funds comes from United States Government securities, private issuers of debt obligations and suppliers of other investment alternatives for depositors. Many of First Banks' non-bank competitors are not subject to the same extensive federal regulations that govern bank holding companies and federally-insured banks and thrifts or the state regulations governing state-chartered banks and thrifts. Such non-bank competitors may, as a result, have certain advantages over First Banks in providing some services. The trend in Missouri, Illinois, Texas and California has been for multi-bank holding companies to acquire independent banks and thrifts in communities throughout these states. First Banks believes it will continue to face competition in the acquisition of such banks and thrifts from bank holding companies based in those states and from bank holding companies based in other states under interstate banking laws. Many of the financial institutions with which First Banks competes are larger than First Banks and have substantially greater resources available for making acquisitions. Subject to regulatory approval, commercial banks situated in Missouri, Illinois, Texas and California are permitted to establish branches throughout their respective states, thereby creating the potential for additional competition in the services areas of the Subsidiary Banks. 51 57 SUPERVISION AND REGULATION GENERAL First Banks and its Subsidiary Banks are extensively regulated under federal and state law. These laws and regulations are intended to protect depositors, not shareholders. To the extent that the following information describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in applicable laws or regulations may have a material effect on the business and prospects of First Banks. The operations of First Banks may be affected by legislative changes and by the policies of various regulatory authorities. First Banks is unable to predict the nature or the extent of the effects on its business and earnings that fiscal or monetary policies, economic controls or new federal or state legislation may have in the future. First Banks is a registered bank holding company under the BHCA and, as such, is subject to regulation, supervision and examination by the Federal Reserve. First Banks is required to file annual reports with the Federal Reserve and to provide the Federal Reserve such additional information as it may require. First Banks' state-chartered Subsidiary Banks (First Bank (Missouri), First Bank (Illinois), FB&T, First Commercial and Sunrise) are subject to supervision and regulation by the bank supervisory authorities in their respective states and also by their respective primary federal bank regulators. The primary such regulator for First Bank (Missouri), as a member of the Federal Reserve System, is the Federal Reserve, while the primary federal bank regulator for First Bank (Illinois), FB&T, First Commercial and Sunrise, which are not members of the Federal Reserve System, is the FDIC. First Bank FSB, as a federally chartered savings institution, is subject to supervision and regulation by the Office of Thrift Supervision (``OTS''), and BTX, as a national banking association, is subject to the supervision and regulation of the Office the Comptroller of the Currency (the ``OCC''). Because the FDIC provides deposit insurance to the Subsidiary Banks, the Subsidiary Banks are also subject to supervision and regulation by the FDIC (even where the FDIC is not their primary federal regulator). RECENT AND PENDING LEGISLATION The enactment of the legislation described below has significantly affected the banking industry generally and will have an ongoing effect on First Banks and its Subsidiary Banks in the future. FINANCIAL INSTITUTIONS REFORM, RECOVERY, AND ENFORCEMENT ACT OF 1989. The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (``FIRREA'') reorganized and reformed the regulatory structure applicable to financial institutions generally. FIRREA, among other things, enhanced the supervisory and enforcement powers for the federal bank regulatory agencies, required insured financial institutions to guaranty repayment of losses incurred by the FDIC in connection with the failure of an affiliated financial institution, required financial institutions to provide their primary federal regulator with notice (under certain circumstances) of changes in senior management and broadened authority for bank holding companies to acquire savings institutions. Under FIRREA, federal bank regulators were granted expanded enforcement authority over ``institution-affiliated parties'' (i.e., officers, directors, controlling shareholders, as well as attorneys, appraisers or accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an insured institution). Federal banking regulators have greater flexibility to bring enforcement actions against insured institutions and institution-affiliated parties, including cease and desist orders, prohibition orders, civil money penalties, termination of insurance and the imposition of operating restrictions and capital plan requirements. These enforcement actions, in general, may be initiated for violations of laws and regulations and unsafe or unsound practices. Since the enactment of FIRREA, the federal bank regulators have significantly increased the use of written agreements to correct compliance deficiencies with respect to applicable laws and regulations and to ensure safe and sound practices. Violations of such written agreements are grounds for initiation of cease-and-desist proceedings. FIRREA granted the FDIC back-up enforcement authority to recommend enforcement action to an appropriate federal banking agency and to bring such enforcement action against a financial institution or an institution-affiliated party if such federal banking agency fails to follow the FDIC's recommendation. FIRREA also requires, except under certain circumstances, public disclosure of final enforcement actions by the federal banking agencies. 52 58 FIRREA also established a cross guarantee provision pursuant to which the FDIC may recover from a depository institution losses that the FDIC incurs in providing assistance to, or paying off the depositors of, any of such depository institution's affiliated insured banks or thrifts. The cross guarantee thus enables the FDIC to assess a holding company's healthy BIF members and SAIF members for the losses of any of such holding company's failed BIF and SAIF members. Cross guarantee liabilities are generally superior in priority to obligations of the depository institution to its shareholders due solely to their status as shareholders and obligations to other affiliates. Cross guarantee liabilities are generally subordinated to deposit liabilities, secured obligations or any other general or senior liabilities, and any obligations subordinated to depositors or other general creditors. THE FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991. The Federal Deposit Insurance Corporation Improvement Act of 1991 (``FDICIA'') was adopted to recapitalize the BIF and impose certain supervisory and regulatory reforms on insured depository institutions. FDICIA, in general, includes provisions, among others, to (i) increase the FDIC's line of credit with the U.S. Treasury in order to provide the FDIC with additional funds to cover the losses of federally insured banks, (ii) reform the deposit insurance system, including the implementation of risk-based deposit insurance premiums, (iii) establish a format for closer monitoring of financial institutions to enable prompt corrective action by banking regulators when a financial institution begins to experience financial difficulty, (iv) establish five capital levels for financial institutions (``well capitalized,'' ``adequately capitalized,'' ``undercapitalized,'' ``significantly undercapitalized'' and ``critically undercapitalized'') that would impose more scrutiny and restrictions on less capitalized institutions, (v) require the banking regulators to set operational and managerial standards for all insured depository institutions and their holding companies, including limits on excessive compensation to executive officers, directors, employees and principal shareholders, and establish standards for loans secured by real estate, (vi) adopt certain accounting reforms and require annual on-site examinations of federally insured institutions, including the ability to require independent audits of banks and thrifts, (vii) revise risk-based capital standards to ensure that they (a) take adequate account of interest-rate changes, concentration of credit risk and the risks of nontraditional activities, and (b) reflect the actual performance and expected risk of loss of multi-family mortgages, and (viii) restrict state-chartered banks from engaging in activities not permitted for national banks unless they are adequately capitalized and have FDIC approval. FDICIA also permits the FDIC to make special assessments on insured depository institutions, in amounts determined by the FDIC to be necessary to give it adequate assessment income to repay amounts borrowed from the U.S. Treasury and other sources or for any other purpose the FDIC deems necessary. FDICIA also grants authority to the FDIC to establish semiannual assessment rates on BIF and SAIF member banks so as to maintain these funds at the designated reserve ratios. FDICIA, as noted above, authorizes and (under certain circumstances) requires the federal banking agencies to take certain actions against institutions that fail to meet certain capital-based requirements. The federal banking agencies are required, under FDICIA, to establish five levels of insured depository institutions based on leverage limit and risk-based capital requirements established for institutions subject to their jurisdiction plus, in their discretion, individual additional capital requirements for such institutions. Under the final rules that have been adopted by each of the federal banking agencies, an institution will be designated (i) ``well-capitalized'' if the institution has a total risk-based capital ratio of 10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or greater, and the institution is not subject to an order, written agreement, capital directive, or prompt corrective action directive to meet and maintain a specific capital level for any capital measure, (ii) ``adequately capitalized'' if the institution has a total risk-based capital ratio of 8% or greater, a Tier 1 risk-based capital ratio of 4% or greater, and a leverage ratio of 4% or greater (or a leverage ratio of 3% or greater if the institution is rated composite 1 in its most recent report of examination), (iii) ``undercapitalized'' if the institution has a total risk-based capital ratio that is less than 8%, a Tier 1 risk-based capital ratio that is less than 4%, or a leverage ratio that is less than 4% (or a leverage ratio that is less than 3% if the institution is rated composite 1 in its most recent report of examination), (iv) ``significantly undercapitalized'' if the institution has a total risk-based capital ratio that is less than 6%, a Tier 1 risk-based capital ratio that is less than 3%, or a leverage ratio that is less than 3%, and (v) ``critically undercapitalized'' if the institution has a ratio of tangible equity to total assets that is equal to or less than 2%. Undercapitalized institutions are required to submit capital restoration plans to the appropriate federal banking agency and are subject to certain operational restrictions. Companies controlling an undercapitalized institution are also required to guarantee the subsidiary institution's compliance with the capital restoration plan subject to an aggregate limitation of the lesser of 5% of the institution's assets or the amount of the capital deficiency when the institution first failed to meet the plan. 53 59 Significantly or critically undercapitalized institutions and undercapitalized institutions that did not submit or comply with acceptable capital restoration plans will be subject to regulatory sanctions. A forced sale of shares or merger, restriction on affiliate transactions and restrictions on rates paid on deposits are required to be imposed by the banking agency unless it is determined that they would not further capital improvement. FDICIA generally requires the appointment of a conservator or receiver within 90 days after an institution becomes critically undercapitalized. The federal banking agencies have adopted uniform procedures for the issuance of directives by the appropriate federal banking agency. Under these procedures, an institution will generally be provided advance notice when the appropriate federal banking agency proposes to impose one or more of the sanctions set forth above. These procedures provide an opportunity for the institution to respond to the proposed agency action or, where circumstances warrant immediate agency action, an opportunity for administrative review of the agency's action. As described under ``Management's Discussion and Analysis--Capital,'' First Banks and each of its Subsidiary Banks have, as of September 30, 1996, capital in excess of the requirements for a ``well-capitalized'' institution. Pursuant to FDICIA, the Federal Reserve and the other federal banking agencies adopted real estate lending guidelines pursuant to which each insured depository institution is required to adopt and maintain written real estate lending policies in conformity with the prescribed guidelines. Under these guidelines, each institution is expected to set loan to value ratios not exceeding the supervisory limits set forth in the guidelines. A loan to value ratio is generally defined as the total loan amount divided by the appraised value of the property at the time the loan is originated. The guidelines require that the institution's real estate policy also require proper loan documentation, and that it establish prudent underwriting standards. These guidelines became effective on March 19, 1993. These rules have had no material adverse impact on First Banks. FDICIA also contained the Truth in Savings Act, which requires clear and uniform disclosure of the rates of interest payable on deposit accounts by depository institutions, and the fees assessable against deposit accounts, so that consumers can make a meaningful comparison between the competing claims of financial institutions with regard to deposit accounts and products. RIEGLE-NEAL INTERSTATE BANKING AND BRANCHING EFFICIENCY ACT OF 1994. Congress enacted the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the ``Interstate Act'') in September 1994. Beginning in September 1995, bank holding companies have the right to expand, by acquiring existing banks, into all states, even those which had theretofore restricted entry. The legislation also provides that, subject to future action by individual states, a holding company will have the right, commencing in 1997, to convert the banks which its owns in different states to branches of a single bank. A state is permitted to ``opt out'' of the law which will permit conversion of separate banks to branches, but is not permitted to ``opt out'' of the law allowing bank holding companies from other states to enter the state. Of those states in which the Subsidiary Banks are located, Texas has adopted legislation to ``opt out'' of the interstate branching provisions (which Texas law currently expires on September 2, 1999). The federal legislation also establishes limits on acquisitions by large banking organizations, providing that no acquisition may be undertaken if it would result in the organization having deposits exceeding either 10% of all bank deposits in the United States or 30% of the bank deposits in the state in which the acquisition would occur. ECONOMIC GROWTH AND REGULATORY PAPERWORK REDUCTION ACT OF 1996. The Economic Growth and Regulatory Paperwork Reduction Act of 1996 (``EGRPRA'') was signed into law on September 30, 1996. EGRPRA streamlined the non-banking activities application process for well-capitalized and well-managed bank holding companies. Under EGRPRA, qualified bank holding companies may commence a regulatory approved non-banking activity without prior notice to the Federal Reserve; written notice is required within 10 days after commencing the activity. Under EGRPRA, the prior notice period is reduced to 12 days in the event of any non-banking acquisition or share purchase, assuming the size of the acquisition does not exceed 10% of risk-weighted assets of the acquiring bank holding company and the consideration does not exceed 15% of Tier 1 capital. The foregoing prior notice requirement also applies to commencing non-banking activity de novo which has been previously approved by order of the Federal Reserve, but not yet implemented by regulations. EGRPRA also provides for the recapitalization of the SAIF in order to bring it into parity with the BIF of the FDIC. First Banks recorded an $8.6 million charge in the third quarter of 1996 for the one-time special deposit insurance assessment. As a result of this special assessment, however, First Banks' cost of deposit insurance is expected to decrease by approximately $2 million for the year ended December 31, 1997, compared to its deposit insurance cost for the year ended December 31, 1996, excluding the effect of the special assessment. The expected 54 60 decrease in the cost of deposit insurance is based on an overall assessment rate for 1997 of 1.3 basis points and 6.4 basis points for each $100 of assessable deposits of BIF and SAIF deposits, respectively, in comparison to the current assessment rate, applicable only to SAIF deposits, of 23 basis points. See ``Management's Discussion and Analysis--General.'' PENDING LEGISLATION. Because of concerns relating to competitiveness and the safety and soundness of the banking industry, Congress is considering a number of wide-ranging proposals for altering the structure, regulation and competitive relationships of the nation's financial institutions. Among such bills are new proposals to merge the BIF and the SAIF insurance funds, to eliminate the federal thrift charter, to alter the statutory separation of commercial and investment banking and to further expand the powers of banks, bank holding companies and competitors of banks. It cannot be predicted whether or in what form any of these proposals will be adopted or the extent to which the business of First Banks may be affected thereby. BANK AND BANK HOLDING COMPANY REGULATION BHCA. Under the BHCA, the activities of a bank holding company are limited to businesses so closely related to banking, managing or controlling banks as to be a proper incident thereto. First Banks is also subject to capital requirements applied on a consolidated basis in a form substantially similar to those required of the Subsidiary Banks. The BHCA also requires a bank holding company to obtain approval from the Federal Reserve before (i) acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares (unless it already owns or controls the majority of such shares), (ii) acquiring all or substantially all of the assets of another bank or bank holding company, or (iii) merging or consolidating with another bank holding company. The Federal Reserve will not approve any acquisition, merger or consolidation that would have a substantially anticompetitive result, unless the anticompetitive effects of the proposed transaction are clearly outweighed by a greater public interest in meeting the convenience and needs of the community to be served. The Federal Reserve also considers capital adequacy and other financial and managerial factors in reviewing acquisitions or mergers. The BHCA also prohibits a bank holding company, with certain limited exceptions, (i) from acquiring or retaining direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank or bank holding company, or (ii) from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, or providing services for its subsidiaries. The principal exceptions to these prohibitions involve certain non-bank activities which, by statute or by Federal Reserve regulation or order, have been identified as activities closely related to the business of banking or of managing or controlling banks. The Federal Reserve, in making such determination, considers whether the performance of such activities by a bank holding company can be expected to produce benefits to the public such as greater convenience, increased competition or gains in efficiency in resources, which can be expected to outweigh the risks of possible adverse effects such as decreased or unfair competition, conflicts of interest or unsound banking practices. FIRREA (described in more detail herein) made a significant addition to the list of permitted non-bank activities for bank holding companies by providing that bank holding companies may acquire thrift institutions upon approval by the Federal Reserve and the applicable regulatory authority for the thrift institutions. INSURANCE OF ACCOUNTS. The FDIC provides insurance, through the BIF and the SAIF, to deposit accounts at the Subsidiary Banks to a maximum of $100,000 for each insured depositor. Certain of the Subsidiary Banks have deposits which were added through the merger of acquired thrifts. Consequently, First Bank (Missouri), First Bank (Illinois), First Bank FSB and FB&T are members of both the BIF and the SAIF. BTX, First Commercial and Sunrise are members of the BIF only. Through December 31, 1992, all FDIC-insured institutions, whether members of the BIF, the SAIF or both, paid the same premium (23 cents per $100 of assessable deposits) under a flat-rate system mandated by law. FDICIA required the FDIC to raise the reserves of the BIF and the SAIF, implement a risk-related premium system and adopt a long-term schedule for recapitalizing the BIF. Effective January 1, 1993, the FDIC amended its regulations regarding insurance premiums to provide that a bank or thrift would pay an insurance assessment within a range of 23 cents to 31 cents for each $100 of assessable deposits, depending on its risk classification. On January 1, 1996, the FDIC adopted an amendment to the BIF risk-based assessment schedule which effectively eliminated deposit insurance assessments for most commercial banks and other depository institutions 55 61 with deposits insured by the BIF only, while maintaining the assessment rate for SAIF-insured institutions in even the lowest risk-based premium category at 23 cents for each $100 of assessable deposits. Following enactment of EGRPRA, First Banks paid a one-time special deposit insurance assessment with respect to its SAIF insured deposits, as part of the recapitalization of the SAIF, and the overall assessment rate for 1997 was revised to equal 1.29 cents and 6.44 cents for each $100 of assessable deposits of BIF and SAIF, respectively, in comparison to the current assessment rate, applicable only to SAIF deposits, of 23 cents for each $100 of assessable deposits. THE PREFERRED SECURITIES AND THE SUBORDINATED DEBENTURES OFFERED BY THIS PROSPECTUS ARE NOT SAVINGS OR DEPOSIT ACCOUNTS, ARE NOT OBLIGATIONS OF ANY BANKING OR NONBANKING AFFILIATE OF FIRST BANKS (EXCEPT TO THE EXTENT THAT PREFERRED SECURITIES ARE GUARANTEED BY FIRST BANKS AS DESCRIBED HEREIN), ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY AND INVOLVE INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. REGULATIONS GOVERNING CAPITAL ADEQUACY. The federal bank regulatory agencies use capital adequacy guidelines in their examination and regulation of bank holding companies and banks. If the capital falls below the minimum levels established by these guidelines, the bank holding company or bank may be denied approval to acquire or establish additional banks or nonbank businesses or to open facilities. The Federal Reserve, the FDIC and the OCC adopted risk-based capital guidelines for banks and bank holding companies, and the OTS has adopted similar guidelines for thrifts. The risk-based capital guidelines are designed to make regulatory capital requirements more sensitive to differences in risk profile among banks and bank holding companies, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items are assigned to broad risk categories, each with appropriate weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items. The Federal Reserve has noted that bank holding companies contemplating significant expansion programs should not allow expansion to diminish their capital ratios and should maintain ratios well in excess of the minimums. Under these guidelines, all bank holding companies and federally regulated banks must maintain a minimum risk-based total capital ratio equal to 8%, of which at least one-half must be Tier 1 capital. Pursuant to FDICIA, banking regulators are to revise the risk-based capital standards to take into account interest rate risk, concentration of credit risk and the risks of nontraditional activities and multi-family mortgages. The Federal Reserve also has implemented a leverage ratio, which is Tier 1 capital to total assets, to be used as a supplement to the risk-based guidelines. The principal objective of the leverage ratio is to place a constraint on the maximum degree to which a bank holding company may leverage its equity capital base. The Federal Reserve requires a minimum leverage ratio of 3%. For all but the most highly-rated bank holding companies and for bank holding companies seeking to expand, however, the Federal Reserve expects that additional capital sufficient to increase the ratio by at least 100 to 200 basis points will be maintained. On October 21, 1996, the Federal Reserve issued a press release (the ``Federal Reserve Press Release'') announcing that it had approved the use of certain cumulative preferred stock instruments, such as the Preferred Securities, in Tier 1 capital for bank holding companies. Because, subject to certain regulatory limitations, the Preferred Securities may qualify as Tier 1 capital and, under current United States federal tax law, the issuer will receive a tax deduction for interest in respect of the Subordinated Debentures, the issuance of the Preferred Securities is a cost effective method of raising capital on an after-tax basis. See ``Management's Discussion and Analysis--Capital'' for a discussion of the capital adequacy of First Banks and the Subsidiary Banks. Management of First Banks believes that the risk-weighting of assets and the risk-based capital guidelines do not have a material adverse impact on First Banks' operations or on the operations of its Subsidiary Banks. The requirement of deducting certain intangibles in computing capital ratios contained in the guidelines, however, could adversely affect the ability of First Banks to make acquisitions in the future in transactions that would be accounted for using the purchase method of accounting. Although these requirements would not reduce the ability of First Banks to make acquisitions using the pooling of interests method of accounting, First Banks has not historically made, and has no present plans to make, acquisitions on this basis. COMMUNITY REINVESTMENT ACT. The Community Reinvestment Act of 1977 (the ``CRA'') requires that, in connection with examinations of financial institutions within their jurisdiction, the federal banking regulators must evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low 56 62 and moderate income neighborhoods, consistent with the safe and sound operation of those banks. These factors are also considered in evaluating mergers, acquisitions and applications to open a branch or facility. The CRA is likely to be the subject of regulatory reform in the next few years, and proposed rules have been published for comment by the four regulatory agencies noted above. Although it is not possible to predict the extent to which the CRA will be modified, these changes may change the process by which a financial institution, such as First Banks and the Subsidiary Banks, is able to grow through acquisitions or establishing new branches. REGULATIONS GOVERNING EXTENSIONS OF CREDIT. The Subsidiary Banks are subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to the bank holding company or its subsidiaries, or investments in their securities and on the use of their securities as collateral for loans to any borrowers. These regulations and restrictions may limit the ability of First Banks to obtain funds from its Subsidiary Banks for its cash needs, including funds for acquisitions and for payment of dividends, interest and operating expenses. Transactions among the Subsidiary Banks (other than BTX, First Commercial and Sunrise) that do not involve First Banks or FirstServ, Inc. are generally exempt from the foregoing regulations and restrictions. Because the exemption is available only to those Subsidiary Banks that are at least 80% owned by First Banks, it would not apply to such transactions involving BTX, Sunrise and First Commercial. Further, under the BHCA and certain regulations of the Federal Reserve, a bank holding company and its subsidiaries are prohibited from engaging in certain tying arrangements in connection with any extension of credit, lease or sale of property or furnishing of services. For example, a Subsidiary Bank may not generally require a customer to obtain other services from such Subsidiary Bank or any other Subsidiary Bank or First Banks, and may not require the customer to promise not to obtain other services from a competitor, as a condition to an extension of credit to the customer. The Subsidiary Banks are also subject to certain restrictions imposed by the Federal Reserve Act on extensions of credit to executive officers, directors, principal shareholders or any related interest of such persons. Extensions of credit (i) must be made on substantially the same terms, including interest-rates and collateral as, and following credit underwriting procedures that are not less stringent than, those prevailing at the time for comparable transactions with persons not covered above and who are not employees, and (ii) must not involve more than the normal risk of repayment or present other unfavorable features. The Subsidiary Banks are also subject to certain lending limits and restrictions on overdrafts to such persons. A violation of these restrictions may result in the assessment of substantial civil monetary penalties on a Subsidiary Bank or any officer, director, employee, agent or other person participating in the conduct of the affairs of a Subsidiary Bank or the imposition of a cease and desist order. RESERVE REQUIREMENTS. The Federal Reserve requires all depository institutions to maintain reserves against their transaction accounts and non-personal time deposits. Reserves of 3% must be maintained against total transaction accounts of $51.9 million or less (subject to adjustment by the Federal Reserve) and an initial reserve of $1,557,000 plus 10% (subject to adjustment by the Federal Reserve to a level between 8% and 14%) must be maintained against that portion of total transaction accounts in excess of such amount. The balances maintained to meet the reserve requirements imposed by the Federal Reserve may be used to satisfy liquidity requirements. Institutions are authorized to borrow from the Federal Reserve Bank ``discount window,'' but Federal Reserve regulations require institutions to exhaust other reasonable alternative sources of funds, including Federal Home Loan Bank advances, before borrowing from the Federal Reserve Bank. FEDERAL HOME LOAN BANK SYSTEM. First Bank FSB, First Bank (Missouri), First Bank (Illinois), FB&T and BTX are members of the Federal Home Loan Bank System (the ``FHLB System''). The FHLB System consists of twelve regional Federal Home Loan Banks (each, a ``FHLB''), each subject to supervision and regulation by the Federal Housing Finance Board, an independent agency created by FIRREA. The FHLBs provide a central credit facility primarily for member institutions. First Bank FSB and First Bank (Missouri), as members of the FHLB of Des Moines, First Bank (Illinois), as a member of the FHLB of Chicago, BTX, as a member of the FHLB of Dallas, and FB&T, as a member of the FHLB of San Francisco, are required to acquire and hold shares of capital stock in the FHLB in amounts at least equal to 1% of the aggregate principal amount of its unpaid residential mortgage loans and similar obligations at the beginning of each year, or 1/20th of its advances (borrowings) from the FHLB, whichever is greater. Each of the Subsidiary Banks which is a member of the FHLB is in compliance with these regulations. QUALIFIED THRIFT LENDER STATUS. First Bank FSB must, and currently does, meet a ``Qualified Thrift Lender'' (the ``QTL'') test for, among other things, future eligibility for FHLB advances. The QTL test requires savings associations to maintain a specified percentage of assets in ``qualifying'' investments, which may include, for example, home 57 63 mortgage loans, mortgage-backed securities and a percentage of consumer loans. Any savings association that fails to meet the QTL test must convert to a commercial bank charter, unless it requalifies as a QTL on an average basis in at least three out of every four quarters for two out of three years and thereafter remains a QTL. If an institution that fails the QTL test has not yet requalified and has not converted to a commercial bank, its new investments and activities are limited to those permissible for a national bank. Such an association is also immediately ineligible to receive any new FHLB advances and is subject to national bank limits for payment of dividends and may not establish a branch office at any location at which a national bank located in the savings association's home state could not establish a branch. If such association has not requalified or converted to a commercial bank charter three years after its failure to meet the QTL test, it must divest all investments and cease all activities not permissible for a national bank. Such an association must also repay promptly any outstanding FHLB advances. Certain temporary and limited exceptions from meeting the QTL test may be granted by the OTS. DIVIDENDS. First Banks' primary sources of funds are the dividends and management fees paid by its Subsidiary Banks. The ability of the Subsidiary Banks to pay dividends and management fees is limited by various state and federal laws, by the regulations promulgated by their respective primary regulators and by the principles of prudent bank management. The amount of dividends that the Subsidiary Banks may pay to First Banks is also limited by the provisions of the Credit Agreement, which imposes certain minimum capital requirements. Under the most restrictive of these requirements, dividends from the Subsidiary Banks are limited to approximately $37.8 million as of September 30, 1996, unless prior permission of the regulatory authorities and, if necessary, the lead bank for the lenders is obtained. USURY LAWS. The maximum legal rate of interest which the Subsidiary Banks charge on a particular loan depends on a variety of factors such as the type of borrower, the purpose of the loan, the amount of the loan and the date the loan is made. There are several state and federal statutes which set maximum legal rates of interest for various kinds of loans. If a loan qualifies under more than one statute, a bank may often charge the highest rate for which the loan is eligible. MONETARY POLICY AND ECONOMIC CONTROL. The commercial banking business in which First Banks engages is affected not only by general economic conditions, but also by the monetary policies of the Federal Reserve. Changes in the discount rate on member bank borrowing, availability of borrowing at the ``discount window,'' open market operations, the imposition of changes in reserve requirements against member banks deposits and assets of foreign branches, and the imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates are some of the instruments of monetary policy available to the Federal Reserve. These monetary policies are used in varying combinations to influence overall growth and distributions of bank loans, investments and deposits, and such use may affect interest rates charged on loans or paid on deposits. The monetary policies of the Federal Reserve have had a significant effect on the operating results of commercial banks and are expected to do so in the future. The monetary policies of the Federal Reserve are influenced by various factors, including inflation, unemployment, short-term and long-term changes in the international trade balance and in the fiscal policies of the U.S. Government. Future monetary policies and the effect of such policies on the future business and earnings of First Banks and the Subsidiary Banks cannot be predicted. DESCRIPTION OF THE 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. The Property Trustee, State Street Bank and Trust Company, will act as indenture trustee for the Preferred Securities under the Trust Agreement for purposes of complying with the provisions of 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. The following 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, the Trust Agreement, the Trust Act, and the Trust Indenture Act. Wherever particular defined terms of the Trust Agreement are referred to, but not defined herein, such defined terms are incorporated herein by reference. The form of the Trust Agreement has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. 58 64 GENERAL Pursuant to the terms of the Trust Agreement, the Trustees, on behalf of First Capital, will issue the Trust Securities. All of the Common Securities will be owned by First Banks. The Preferred Securities will represent preferred undivided beneficial interests in the assets of First 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, as well as other benefits as described in the Trust Agreement. The Trust Agreement does not permit the issuance by First Capital of any securities other than the Trust Securities or the incurrence of any indebtedness by First Capital. The Preferred Securities will rank pari passu, and payments will be made thereon pro rata, with the Common Securities, except as described under ``--Subordination of Common Securities.'' Legal title to the Subordinated Debentures will be held by the Property Trustee in trust for the benefit of the holders of the Trust Securities. The Guarantee executed by First Banks 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 First Capital does not have funds on hand available to make such payments. State Street Bank and Trust Company, as Guarantee Trustee, will hold the Guarantee for the benefit of the holders of the Preferred Securities. See ``Description of the Guarantee.'' DISTRIBUTIONS PAYMENT OF DISTRIBUTIONS. 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 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) except that, if such Business Day is in the next succeeding calendar year, such payment will be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date such payment was originally payable. ``Business Day'' means any day other than a Saturday or a Sunday, 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. First Banks has the right under the Indenture, so long as no Debenture Event of Default has occurred and is continuing, to defer the payment of interest on the Subordinated Debentures at any time, or from time to time (each, an ``Extended Interest Payment Period''), which, if exercised, would defer quarterly Distributions on the Preferred Securities during any such Extended Interest Payment 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. ``Distributions,'' as used herein, includes any such additional Distributions. The right to defer the payment of interest on the Subordinated Debentures is limited, however, to a period, in each instance, not exceeding 20 consecutive quarters and no Extended Interest Payment Period may extend beyond the Stated Maturity of the Subordinated Debentures. During any such Extended Interest Payment Period, First Banks may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of First Banks' capital stock (other than the reclassification of any class of First Banks' capital stock into another class of capital stock or the conversion of the Class A Preferred Stock into Common Stock), (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of First Banks that rank pari passu with or junior in interest to the Subordinated Debentures or make any guarantee payments with respect to any guarantee by First Banks of the debt securities of any subsidiary of First Banks if such guarantee ranks pari passu with or junior in interest to the Subordinated Debentures (other than payments under the Guarantee), or (iii) redeem, purchase or acquire less than all of the Subordinated Debentures or any of the Preferred Securities. Prior to the termination of any such Extended Interest Payment Period, First Banks may further defer the payment of interest; provided that such Extended Interest 59 65 Payment Period may not exceed 20 consecutive quarters or extend beyond the Stated Maturity of the Subordinated Debentures. Upon the termination of any such Extended Interest Payment Period and the payment of all amounts then due, First Banks may elect to begin a new Extended Interest Payment Period, subject to the above requirements. Subject to the foregoing, there is no limitation on the number of times that First Banks may elect to begin an Extended Interest Payment Period. First Banks has no current intention of exercising its right to defer payments of interest by extending the interest payment period on the Subordinated Debentures. SOURCE OF DISTRIBUTIONS. The funds of First Capital available for distribution to holders of its Preferred Securities will be limited to payments under the Subordinated Debentures in which First Capital will invest the proceeds from the issuance and sale of its Trust Securities. See ``Description of the Subordinated Debentures.'' Distributions will be paid through the Property Trustee who will hold amounts received in respect of the Subordinated Debentures in the Property Account for the benefit of the holders of the Trust Securities. If First Banks 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 First Capital has funds legally available for the payment of such Distributions and cash sufficient to make such payments) is guaranteed by First Banks. See ``Description of the Guarantee.'' Distributions on the Preferred Securities will be payable to the holders thereof as they appear on the register of holders of the Preferred Securities on the relevant record dates, which will be the 15th day of the month in which the relevant Distribution Date occurs. REDEMPTION OR EXCHANGE GENERAL. The Subordinated Debentures will mature on March 31, 2027. First Banks will have the right to redeem the Subordinated Debentures (i) on or after March 31, 2002, in whole at any time or in part from time to time, or (ii) at any time, in whole (but not in part), within 180 days following 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. First Banks will not have the right to purchase the Subordinated Debentures, in whole or in part, from First Capital until after March 31, 2002. See ``Description of the Subordinated Debentures--General.'' 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 will be applied by the Property Trustee to redeem a Like Amount (as defined herein) 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 the 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 will be allocated to the redemption of the Trust Securities pro rata. DISTRIBUTION OF SUBORDINATED DEBENTURES. Subject to First Banks having received prior approval of the Federal Reserve if so required under applicable capital guidelines or policies of the Federal Reserve, First Banks will have the right at any time to dissolve, wind-up or terminate First Capital and, after satisfaction of the liabilities of creditors of First Capital as provided by applicable law, cause the Subordinated Debentures to be distributed to the holders of Trust Securities in liquidation of First Capital. See ``--Liquidation Distribution Upon Termination.'' TAX EVENT REDEMPTION OR INVESTMENT COMPANY EVENT REDEMPTION. If a Tax Event or an Investment Company Event in respect of the Trust Securities occurs and is continuing, First Banks has the right to redeem the Subordinated Debentures in whole (but not in part) and thereby cause a mandatory redemption of such Trust Securities in whole (but not in part) at the Redemption Price within 180 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 Trust Securities has occurred and First Banks does not elect to redeem the Subordinated Debentures and thereby cause a mandatory redemption of such Trust Securities or to liquidate First Capital and cause the Subordinated Debentures to be distributed to holders of such Trust Securities in liquidation of First Capital as described below under ``--Liquidation Distribution Upon Termination,'' such Preferred Securities will remain outstanding and Additional Interest (as defined herein) may be payable on the Subordinated Debentures. 60 66 ``Additional Interest'' means the additional amounts as may be necessary in order that the amount of Distributions then due and payable by First Capital on the outstanding Trust Securities will not be reduced as a result of any additional taxes, duties and other governmental charges to which First Capital has become subject as a result of a Tax Event. ``Like Amount'' means (i) with respect to a redemption of Trust Securities, Trust Securities having a Liquidation Amount equal to that portion of the principal amount of Subordinated Debentures to be contemporaneously redeemed in accordance with the Indenture, 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 First 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. Each Subordinated Debenture distributed pursuant to clause (ii) above will carry with it accumulated interest in an amount equal to the accumulated and unpaid interest then due on such Subordinated Debentures. ``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, and (ii) any certificates representing Preferred Securities 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 First Capital were to occur. The Preferred Securities that an investor may purchase, or the Subordinated Debentures that an investor may receive on dissolution and liquidation of First Capital, may, therefore, 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 will be redeemed at the Redemption Price with the applicable proceeds from the contemporaneous redemption of the Subordinated Debentures. Redemptions of the Preferred Securities will be made and the Redemption Price will be payable on each Redemption Date only to the extent that First Capital has funds on hand available for the payment of such Redemption Price. See ``--Subordination of Common Securities.'' If First 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 irrevocably deposit with the paying agent for the Preferred Securities funds sufficient to pay the aggregate Redemption Price and will give the paying agent for the Preferred Securities 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 will be payable to the holders of such Preferred Securities on the relevant record dates for the related Distribution Dates. If notice of redemption will 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), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case, with the same force and effect as if made on such date. In the event that payment of the Redemption Price in respect of Preferred Securities called for redemption is improperly withheld or refused and not paid either by First Capital, or by First Banks 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 First Capital for such Preferred Securities to the date such 61 67 Redemption Price is actually paid, in which case the actual payment date will be considered the date fixed for redemption for purposes of calculating the Redemption Price. See ``Description of the Guarantee.'' Subject to applicable law (including, without limitation, United States federal securities law), First Banks 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 will be made to the applicable recordholders thereof as they appear on the register for the Preferred Securities on the relevant record date, which date will be the date 15 days prior to the Redemption Date or liquidation date, as applicable. If less than all of the Trust Securities are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of such Trust Securities to be redeemed will be allocated pro rata to the Trust Securities based upon the relative Liquidation Amounts of such classes. The particular Preferred Securities to be redeemed will be selected by the Property Trustee from the outstanding Preferred Securities not previously called for redemption, by such method as the Property Trustee deems 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 will promptly notify the registrar for the Preferred Securities in writing of the Preferred Securities selected for redemption and, in the case of any Preferred Securities selected for partial redemption, the Liquidation Amount thereof to be redeemed. For all purposes of the Trust Agreement, unless the context otherwise requires, all provisions relating to the redemption of Preferred Securities will 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 First Banks defaults in payment of the redemption price on the Subordinated Debentures, on and after the 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, will 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 has occurred and is 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, will 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, will have been made or provided for, and all funds available to the Property Trustee will 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, First Banks 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 Trust Agreement until the effect of all such Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated. Until any such Events of Default under the Trust Agreement with respect to the Preferred Securities has been so cured, waived or otherwise eliminated, the Property Trustee will act solely on behalf of the holders of the Preferred Securities and not on behalf of First Banks, 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 First Banks will have the right at any time to dissolve, wind-up or terminate First Capital and cause the Subordinated Debentures to be distributed to the holders of the Preferred Securities. Such right is subject, however, 62 68 to First Banks having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. Pursuant to the Trust Agreement, First Capital will automatically terminate upon expiration of its term and will terminate earlier on the first to occur of (i) certain events of bankruptcy, dissolution or liquidation of First Banks, (ii) the distribution of a Like Amount of the Subordinated Debentures to the holders of its Trust Securities, if First Banks, as depositor, has given written direction to the Property Trustee to terminate First Capital (which direction is optional and wholly within the discretion of First Banks, as depositor), (iii) redemption of all of the Preferred Securities as described under ``Description of the Preferred Securities--Redemption or Exchange--Mandatory Redemption,'' and (iv) the entry of an order for the dissolution of First Capital by a court of competent jurisdiction. If an early termination occurs as described in clause (i), (ii) or (iv) of the preceding paragraph, First Capital will be liquidated by the Trustees as expeditiously as the Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of First 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 First Capital available for distribution to holders, after satisfaction of liabilities to creditors of First 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 First Capital has insufficient assets available to pay in full the aggregate Liquidation Distribution, then the amounts payable directly by First Capital on the Preferred Securities will be paid on a pro rata basis. First Banks, as the holder of the Common Securities, will be entitled to receive distributions upon any such liquidation pro rata with the holders of the Preferred Securities, except that, if a Debenture Event of Default has occurred and is continuing, the Preferred Securities will have a priority over the Common Securities. See ``--Subordination of Common Securities.'' Under current United States federal income tax law and interpretations and assuming, as expected, that First 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--Receipt of Subordinated Debentures or Cash Upon Liquidation of First Capital.'' If First Banks elects neither to redeem the Subordinated Debentures prior to maturity nor to liquidate First 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 First Banks elects to liquidate First Capital and thereby causes the Subordinated Debentures to be distributed to holders of the Preferred Securities in liquidation of First Capital, First Banks will continue to have the right to shorten or extend the maturity of such Subordinated Debentures, subject to certain conditions. See ``Description of the Subordinated Debentures--General.'' LIQUIDATION VALUE The amount of the Liquidation Distribution payable on the Preferred Securities in the event of any liquidation of First 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 ``--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 voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (i) the occurrence of a Debenture Event of Default (see ``Description of the Subordinated Debentures--Debenture Events of Default''); or 63 69 (ii) default by First Capital 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 First Capital 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(s) 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 First Banks 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 will transmit notice of such Event of Default to the holders of the Preferred Securities, the Administrative Trustees and First Banks, as depositor, unless such Event of Default has been cured or waived. First Banks, as depositor, and the Administrative Trustees are required to file annually with the Property Trustee a certificate as to whether or not they are in compliance with all the conditions and covenants applicable to them under the Trust Agreement. If a Debenture Event of Default has occurred and is continuing, the Preferred Securities will have a preference over the Common Securities upon termination of First Capital. 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 FIRST CAPITAL TRUSTEES Unless a Debenture Event of Default has occurred and is 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, however, 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 First Banks as the holder of the Common Securities. No resignation or removal of a Trustee and no appointment of a successor trustee will be effective until the acceptance of appointment by the successor trustee in accordance with the provisions of the Trust Agreement. CO-TRUSTEES AND SEPARATE PROPERTY TRUSTEE Unless an Event of Default has occurred and is 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 (as defined in the Trust Agreement) may at the time be located, First Banks, as the holder of the Common Securities, will have power to appoint one or more Persons (as defined in the Trust Agreement) 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 Trust Property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in such capacity any property, title, right or power deemed necessary or desirable, subject to the provisions of the Trust Agreement. In case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone will 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 is a party, or any Person succeeding to all or substantially 64 70 all the corporate trust business of such Trustee, will be the successor of such Trustee under the Trust Agreement, provided such Person is otherwise qualified and eligible. MERGERS, CONSOLIDATIONS, AMALGAMATIONS OR REPLACEMENTS OF FIRST CAPITAL First 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 Person, except as described below. First Capital may, at the request of First Banks, 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, 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 First 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) First Banks 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, on any national securities exchange or other organization on which the Preferred Securities are then listed (including, if applicable, The Nasdaq Stock Market's National Market), if any, (iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any Successor Securities) in any material respect, (v) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, First Banks has received an opinion from independent counsel to the effect that (a) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any Successor Securities) in any material respect, and (b) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither First Capital nor such successor entity will be required to register as an ``investment company'' under the Investment Company Act, and (vi) First Banks 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, First Capital will not, except with the consent of holders of 100% in Liquidation Amount of the Preferred Securities, consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to any other Person or permit any other Person to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger, replacement, conveyance, transfer or lease would cause First 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 the Guarantee--Amendments and Assignment'' and as otherwise required by the Trust Act 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 First Banks, the Property Trustee and the Administrative Trustees, without the consent of the holders of the Preferred Securities (i) with respect to acceptance of appointment by a successor trustee, (ii) 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 (provided such amendment is not inconsistent with the other provisions of the Trust Agreement), or (iii) to modify, eliminate or add to any provisions of the Trust Agreement to such extent as is necessary to ensure that First 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 First Capital will not be required to register as an ``investment company'' under the Investment Company Act; provided, however, that in the case of clause (ii), such action may not adversely affect in any material respect the interests of any holder of Trust Securities, and any amendments of such Trust Agreement will become effective when notice thereof is given to the holders of Trust Securities. The Trust Agreement may be amended by the Trustees and First Banks with (i) the consent of holders representing not less than a majority in the aggregate Liquidation Amount of the outstanding Trust 65 71 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 First Capital's status as a grantor trust for United States federal income tax purposes or First 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, the Trust Agreement may not be amended to (a) 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 (b) restrict the right of a holder of Trust Securities to institute suit for the enforcement of any such payment on or after such date. The Trustees will not, so long as any Subordinated Debentures are held by the Property Trustee, (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 or annul a declaration that the principal of all the Subordinated Debentures will be due and payable, or (iv) consent to any amendment, modification or termination of the Indenture or the Subordinated Debentures, where such consent is 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 requires the consent of each holder of Subordinated Debentures affected thereby, no such consent will be given by the Property Trustee without the prior consent of each holder of the Preferred Securities. The Trustees may not revoke any action previously authorized or approved by a vote of the holders of the Preferred Securities except by subsequent vote of the holders of the Preferred Securities. The Property Trustee will notify each holder of Preferred Securities of any notice of default with respect to the 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 must obtain an opinion of counsel experienced in such matters to the effect that First 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 First 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 First Banks, the Trustees or any affiliate of First Banks or any Trustee, will, for purposes of such vote or consent, be treated as if they were not outstanding. PAYMENT AND PAYING AGENCY Payments in respect of the Preferred Securities will be made by check mailed to the address of the holder entitled thereto as such address appears on the register of holders of the Preferred Securities. The paying agent for the Preferred Securities will initially be the Property Trustee and any co-paying agent chosen by the Property Trustee and acceptable to the Administrative Trustees and First Banks. The paying agent for the Preferred Securities may resign as paying agent upon 30 days' written notice to the Property Trustee and First Banks. In the event that the Property Trustee no longer is the paying agent for the Preferred Securities, the Administrative Trustees will appoint a successor (which must be a bank or trust company acceptable to the Administrative Trustees and First Banks) to act as paying agent. REGISTRAR AND TRANSFER AGENT The Property Trustee will act as the registrar and the transfer agent for the Preferred Securities. Registration of transfers of Preferred Securities will be effected without charge by or on behalf of First Capital, but upon payment of any tax or other governmental charges that may be imposed in connection with any transfer or exchange. First Capital 66 72 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 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 will take such action as is directed by First Banks and if not so directed, will 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 First Capital in such a way that First 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 First Banks for United States federal income tax purposes. First Banks and the Administrative Trustees are authorized, in this connection, to take any action, not inconsistent with applicable law, the certificate of trust of First Capital or the Trust Agreement, that First Banks and the Administrative Trustees determine in their discretion to be necessary or desirable for such purposes. Holders of the Preferred Securities have no preemptive or similar rights. The Trust Agreement and the Preferred Securities will be governed by, and construed in accordance with, the internal laws of the State of Delaware. DESCRIPTION OF THE SUBORDINATED DEBENTURES Concurrently with the issuance of the Preferred Securities, First Capital will invest the proceeds thereof, together with the consideration paid by First Banks for the Common Securities, in the Subordinated Debentures issued by First Banks. The Subordinated Debentures will be issued as unsecured debt under the Indenture, dated as of January , 1997 (the ``Indenture''), between First Banks and State Street Bank and Trust Company, as trustee (the ``Debenture Trustee''). The Indenture will be qualified as an indenture under the Trust Indenture Act. 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 and to the Trust Indenture Act. Wherever particular defined terms of the Indenture are referred to, but not defined herein, such defined terms are incorporated herein by reference. The form of the Indenture has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. GENERAL The Subordinated Debentures will be limited in aggregate principal amount to approximately $61,855,700 (or $71,134,000 if the option described under the heading ``Underwriting'' is exercised by the Underwriters), such amount being the sum of the aggregate stated Liquidation Amount of the Trust Securities. 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 (as defined in the Indenture) 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 First Capital, the Subordinated Debentures will be held in the name of 67 73 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), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case, with the same force and effect as if made on 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, includes quarterly interest payments, interest on quarterly interest payments not paid on the applicable Interest Payment Date and Additional Interest, as applicable. The Subordinated Debentures will mature on March 31, 2027 (such date, as it may be shortened or extended as hereinafter described, the ``Stated Maturity''). Such date may be shortened at any time by First Banks to any date not earlier than March 31, 2002, subject to First Banks 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 First Banks but in no event to a date later than March 31, 2046, provided that at the time such election is made and at the time of extension (i) First Banks is not in bankruptcy, otherwise insolvent or in liquidation, (ii) First Banks is not in default in the payment of any interest or principal on the Subordinated Debentures, (iii) First Capital is not in arrears on payments of Distributions on the Preferred Securities and no deferred Distributions are accumulated, and (iv) First Banks has a Senior Debt rating of investment grade. In the event that First Banks elects to shorten or extend the Stated Maturity of the Subordinated Debentures, it will give notice thereof to the Debenture Trustee, First Capital and to the holders of the Subordinated Debentures no more than 180 days and no less than 90 days prior to the effectiveness thereof. First Banks will not have the right to purchase the Subordinated Debentures, in whole or in part, from First Capital until after March 31, 2002. The Subordinated Debentures will be unsecured and will rank junior and be subordinate in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of First Banks. Because First Banks is a holding company, the right of First Banks to participate in any distribution of assets of any Subsidiary Bank, upon any such Subsidiary Bank's liquidation or reorganization or otherwise (and thus the ability of holders of the Subordinated Debentures to benefit indirectly from such distribution), is subject to the prior claim of creditors of such Subsidiary Bank, except to the extent that First Banks may itself be recognized as a creditor of such Subsidiary Bank. The Subordinated Debentures will, therefore, be effectively subordinated to all existing and future liabilities of the Subsidiary Banks, and holders of Subordinated Debentures should look only to the assets of First Banks for payments on the Subordinated Debentures. The Indenture does not limit the incurrence or issuance of other secured or unsecured debt of First Banks, including Senior Debt, Subordinated Debt and Additional Senior Obligations, whether under the Indenture or any existing indenture or other indenture that First Banks may enter into in the future or otherwise. See ``--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 First Banks that may adversely affect such holders. OPTION TO EXTEND INTEREST PAYMENT PERIOD First Banks has the right under the Indenture at any time during the term of the Subordinated Debentures, so long as no Debenture Event of Default has occurred and is continuing, to defer the payment of interest at any time, or from time to time (each, an ``Extended Interest Payment Period''). The right to defer the payment of interest on the Subordinated Debentures is limited, however, to a period, in each instance, not exceeding 20 consecutive quarters and no Extended Interest Payment Period may extend beyond the Stated Maturity of the Subordinated Debentures. At the end of each Extended Interest Payment Period, First Banks 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 Extended Interest Payment Period, interest will continue to accrue and holders of Subordinated Debentures (or the holders of Preferred Securities if such securities are then outstanding) will be required to accrue and recognize income for United States federal income tax purposes. See ``Certain Federal Income Tax Consequences--Potential Extension of Interest Payment Period and Original Issue Discount.'' 68 74 During any such Extended Interest Payment Period, First Banks may not (i) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of First Banks' capital stock (other than the reclassification of any class of First Banks' capital stock into another class of capital stock or the conversion of the Class A Preferred Stock into Common Stock), (ii) make any payment of principal, interest or premium, if any, on or repay, repurchase or redeem any debt securities of First Banks that rank pari passu with or junior in interest to the Subordinated Debentures or make any guarantee payments with respect to any guarantee by First Banks of the debt securities of any subsidiary of First Banks if such guarantee ranks pari passu or junior in interest to the Subordinated Debentures (other than payments under the Guarantee), or (iii) redeem, purchase or acquire less than all of the Subordinated Debentures or any of the Preferred Securities. Prior to the termination of any such Extended Interest Payment Period, First Banks may further defer the payment of interest; provided that no Extended Interest Payment Period may exceed 20 consecutive quarters or extend beyond the Stated Maturity of the Subordinated Debentures. Upon the termination of any such Extended Interest Payment Period and the payment of all amounts then due on any Interest Payment Date, First Banks may elect to begin a new Extended Interest Payment Period subject to the above requirements. No interest will be due and payable during an Extended Interest Payment Period, except at the end thereof. First Banks has no present intention of exercising its rights to defer payments of interest on the Subordinated Debentures. First Banks must give the Property Trustee, the Administrative Trustees and the Debenture Trustee notice of its election of such Extended Interest Payment Period at least one Business Day prior to the earlier of (i) the next succeeding date on which Distributions on the Trust Securities would have been payable except for the election to begin such Extended Interest Payment Period, or (ii) the date the Trust is required to give notice of the record date, or the date such Distributions are payable, to The Nasdaq Stock Market's National Market (or other applicable self-regulatory organization) or to holders of the Preferred Securities, but in any event at least one Business Day before such record date. Subject to the foregoing, there is no limitation on the number of times that First Banks may elect to begin an Extended Interest Payment Period. ADDITIONAL SUMS If First Capital or the Property Trustee is required to pay any additional taxes, duties or other governmental charges as a result of the occurrence of a Tax Event, First Banks will pay as additional amounts (referred to herein as ``Additional Interest'') on the Subordinated Debentures such additional amounts as may be required so that the net amounts received and retained by First Capital after paying any such additional taxes, duties or other governmental charges will not be less than the amounts First Capital would have received had such additional taxes, duties or other governmental charges not been imposed. REDEMPTION OR EXCHANGE First Banks will have the right to redeem the Subordinated Debentures prior to maturity (i) on or after March 31, 2002, in whole at any time or in part from time to time, or (ii) at any time in whole (but not in part), within 180 days following the occurrence of a 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. Any such redemption prior to the Stated Maturity will be subject to prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. ``Tax Event'' means the receipt by First 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 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 First Banks on the Subordinated Debentures is not, or within 90 days of the date of such opinion will not be, deductible by First Banks, in whole or in part, for United States federal income tax purposes, (ii) First 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) First 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. First Banks must request and receive an opinion with regard to 69 75 such matters within a reasonable period of time after it becomes aware of the possible occurrence of any of the events described in clauses (i) through (iii) above. ``Investment Company Event'' means the receipt by First 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 interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority, First 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. 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 First Banks defaults in payment of the redemption price for the Subordinated Debentures, 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 the Preferred Securities--Liquidation Distribution Upon Termination,'' under certain circumstances involving the termination of First Capital, the Subordinated Debentures may be distributed to the holders of the Preferred Securities in liquidation of First Capital after satisfaction of liabilities to creditors of First Capital as provided by applicable law. Any such distribution will be subject to receipt of prior approval by the Federal Reserve if then required under applicable policies or guidelines of the Federal Reserve. If the Subordinated Debentures are distributed to the holders of Preferred Securities upon the liquidation of First Capital, First Banks will use its best efforts to list the Subordinated Debentures on The Nasdaq Stock Market's 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. RESTRICTIONS ON CERTAIN PAYMENTS If at any time (i) there has occurred a Debenture Event of Default, (ii) First Banks is in default with respect to its obligations under the Guarantee, or (iii) First Banks has given notice of its election of an Extended Interest Payment Period as provided in the Indenture with respect to the Subordinated Debentures and has not rescinded such notice, or such Extended Interest Payment Period, or any extension thereof, is continuing, First Banks will not (1) declare or pay any dividends or distributions on, or redeem, purchase, acquire, or make a liquidation payment with respect to, any of First Banks' capital stock (other than the reclassification of any class of First Banks' capital stock into another class of capital stock or the conversion of the Class A Preferred Stock into Common Stock), (2) make any payment of principal, interest or premium, if any, on or repay or repurchase or redeem any debt securities of First Banks that rank pari passu with or junior in interest to the Subordinated Debentures or make any guarantee payments with respect to any guarantee by First Banks of the debt securities of any subsidiary of First Banks if such guarantee ranks pari passu or junior in interest to the Subordinated Debentures (other than payments under the Guarantee), or (3) redeem, purchase or acquire less than all of the Subordinated Debentures or any of the Preferred Securities. SUBORDINATION The Indenture provides that the Subordinated Debentures issued thereunder are subordinated and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of First Banks. 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 proceedings of First Banks, the holders of Senior Debt, Subordinated Debt and Additional Senior Obligations of First Banks 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 of First Banks before the holders of Subordinated Debentures will be entitled to receive or retain any payment in respect of the principal of or interest 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 of First Banks outstanding at the time of such acceleration will 70 76 first be entitled to receive payment in full of all amounts due thereon (including any amounts due upon acceleration) before the holders of the Subordinated Debentures will be entitled to receive or retain any payment in respect of the principal of or interest on the Subordinated Debentures. No payments on account of principal or interest in respect of the Subordinated Debentures may be made if there has occurred and is continuing a default in any payment with respect to Senior Debt, Subordinated Debt or Additional Senior Obligations of First Banks or an event of default with respect to any Senior Debt, Subordinated Debt or Additional Senior Obligations of First Banks resulting in the acceleration of the maturity thereof, or if any judicial proceeding is 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 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, with respect to First Banks, 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 First Banks 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 will not be deemed to include (i) any Debt of First Banks 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 First Banks, (ii) any Debt of First Banks to any of its subsidiaries, (iii) any Debt to any employee of First Banks, (iv) any 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, and (v) Debt which constitutes Subordinated Debt. ``Subordinated Debt'' means, with respect to First Banks, 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 First Banks 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 First Banks (other than the Subordinated Debentures). ``Additional Senior Obligations'' means, with respect to First Banks, all indebtedness, 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. ``Claim,'' as used herein, has 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, Subordinated Debt or Additional Senior Obligations that may be incurred by First Banks. First Banks expects from time to time to incur additional indebtedness constituting Senior Debt, Subordinated Debt and Additional Senior Obligations. As of September 30, 71 77 1996, First Banks had aggregate Senior Debt, Subordinated Debt and Additional Senior Obligations of approximately $66.8 million. Because First Banks is a holding company, the Subordinated Debentures are effectively subordinated to all existing and future liabilities of First Banks' subsidiaries, including obligations to depositors. 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 Boston, Massachusetts, except that, at the option of First Banks, payment of any interest may be made (i) by check mailed to the address of the Person entitled thereto as such address appears in the register of holders of the Subordinated Debentures, or (ii) by transfer to an account maintained by the Person entitled thereto as specified in the register of holders of the Subordinated Debentures, 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. First Banks may at any time designate additional paying agents for the Subordinated Debentures or rescind the designation of any paying agent for the Subordinated Debentures; however, First Banks will at all times be required to maintain a paying agent in New York, New York and each place of payment for the Subordinated Debentures. Any moneys deposited with the Debenture Trustee or any paying agent for the Subordinated Debentures, or then held by First Banks 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 will be repaid to First Banks on May 31 of each year or (if then held in trust by First Banks) will be discharged from such trust and the holder of such Subordinated Debenture will thereafter look, as a general unsecured creditor, only to First Banks for payment thereof. REGISTRAR AND TRANSFER AGENT The Debenture Trustee will act as the registrar and the transfer agent for the Subordinated Debentures. Subordinated Debentures 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 registrar. First Banks 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 First Banks maintains a transfer agent in New York, New York. First Banks may at any time designate additional transfer agents with respect to the Subordinated Debentures. In the event of any redemption, neither First Banks nor the Debenture Trustee will 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. MODIFICATION OF INDENTURE First Banks and the Debenture Trustee may, from time to time 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 and qualifying, or maintaining the qualification of, the Indenture under the Trust Indenture Act. The Indenture contains provisions permitting First Banks 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; provided, that no such modification may, without the consent of the holder of each outstanding Subordinated Debenture affected by such proposed modification, (i) extend the fixed 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 requires the consent of the holders of the Subordinated Debentures, and no termination of the Indenture may occur, and no waiver of any Debenture Event of Default may be effective, without the prior consent of the holders of at least a majority of the aggregate Liquidation Amount of the Preferred Securities and that if the consent of the holder of each Subordinated Debenture is required, such modification will not be effective until each holder of Trust Securities has consented thereto. 72 78 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 an event of default (each, 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 Extended Interest Payment 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 First Banks 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 First Banks. 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 Subordinated Debentures fail to annul such declaration and waive such default, the holders of a majority in aggregate Liquidation Amount of the Preferred Securities will have such right. First Banks is required to file annually with the Debenture Trustee a certificate as to whether or not First Banks is in compliance with all the conditions and covenants applicable to it under the Indenture. If a Debenture Event of Default has occurred and is continuing, 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 THE PREFERRED SECURITIES If a Debenture Event of Default has occurred and is continuing and such event is attributable to the failure of First Banks 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 First Banks 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, First Banks will have a right of set-off under the Indenture to the extent of any payment made by First Banks to such holder of Preferred Securities in the Direct Action. First Banks 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, First Capital may become subject to the reporting obligations under the Exchange Act. First Banks has the right under the Indenture to set-off any payment made to such holder of Preferred Securities by First Banks in connection with a Direct Action. The holders of the Preferred Securities will not be able to exercise directly any remedies, other than those set forth in the preceding paragraph, available to the holders of the Subordinated Debentures unless there has been an Event of Default under the Trust Agreement. See ``Description of the Preferred Securities--Events of Default; Notice.'' 73 79 CONSOLIDATION, MERGER, SALE OF ASSETS AND OTHER TRANSACTIONS First Banks may not consolidate with or merge into any other Person or convey or transfer its properties and assets substantially as an entirety to any Person, and any Person may not consolidate with or merge into First Banks or sell, convey, transfer or otherwise dispose of its properties and assets substantially as an entirety to First Banks, unless (i) in the event First Banks 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 by supplemental indenture First Banks' 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, has occurred and is continuing, and (iii) certain other conditions as prescribed in the Indenture are met. SATISFACTION AND DISCHARGE The Indenture will cease to be of further effect (except as to First Banks' obligations to pay certain sums due pursuant to the Indenture and to provide certain officers' certificates and opinions of counsel described therein) and First Banks will be deemed to have satisfied and discharged the Indenture 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 or are to be called for redemption within one year, and First Banks deposits or causes to be deposited with the Debenture Trustee funds, in trust, for the purpose and in an amount sufficient to pay and discharge the entire indebtedness on the 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 or redemption date, as the case may be. GOVERNING LAW The Indenture and the Subordinated Debentures will be governed by and construed in accordance with the laws of the State of Missouri. INFORMATION CONCERNING THE DEBENTURE TRUSTEE The Debenture Trustee has and is 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. MISCELLANEOUS First Banks has agreed, pursuant to the Indenture, for so long as Trust Securities remain outstanding, (i) to maintain directly or indirectly 100% ownership of the Common Securities of First Capital (provided that certain successors which are permitted pursuant to the Indenture may succeed to First Banks' ownership of the Common Securities), (ii) not to voluntarily terminate, wind up or liquidate First 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 First Capital, or (b) in connection with certain mergers, consolidations or amalgamations permitted by the Trust Agreement, and (iii) to use its reasonable efforts, consistent with the terms and provisions of the Trust Agreement, to cause First Capital to remain classified as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes. 74 80 DESCRIPTION OF THE GUARANTEE The Preferred Securities Guarantee Agreement (the ``Guarantee'') will be executed and delivered by First Banks concurrently with the issuance of the Preferred Securities for the benefit of the holders of the Preferred Securities. The Guarantee will be qualified as an indenture under the Trust Indenture Act. The Guarantee Trustee will act as indenture trustee under the Guarantee for purposes of complying with the provisions of the Trust Indenture Act. The Guarantee Trustee, State Street Bank and Trust Company, will hold the Guarantee for the benefit of the holders of the Preferred Securities. 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 and the Trust Indenture Act. Wherever particular defined terms of the Guarantee are referred to, but not defined herein, such defined terms are incorporated herein by reference. The form of the Guarantee has been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. GENERAL First Banks will, pursuant to the Guarantee, irrevocably agree to pay in full on a subordinated basis, to the extent set forth therein, 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 First 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 First Capital (the ``Guarantee Payments''), will be subject to the Guarantee: (i) any accrued and unpaid Distributions required to be paid on the Preferred Securities, to the extent that First Capital has funds available therefor at such time, (ii) the Redemption Price with respect to any Preferred Securities called for redemption to the extent that First Capital has funds available therefor at such time, and (iii) upon a voluntary or involuntary dissolution, winding up or liquidation of First Capital (other than in connection with the distribution of Subordinated Debentures to the holders of Preferred Securities or a redemption of all of the Preferred Securities), the lesser of (a) the amount of the Liquidation Distribution, to the extent First Capital has funds available therefor at such time, and (b) the amount of assets of First Capital remaining available for distribution to holders of Preferred Securities in liquidation of First Capital. The obligation of First Banks to make a Guarantee Payment may be satisfied by direct payment of the required amounts by First Banks to the holders of the Preferred Securities or by causing First Capital to pay such amounts to such holders. The Guarantee will not apply to any payment of Distributions except to the extent First Capital has funds available therefor. If First Banks does not make interest payments on the Subordinated Debentures held by First Capital, First Capital will not pay Distributions on the Preferred Securities and will not have funds legally available therefor. STATUS OF THE GUARANTEE The Guarantee will constitute an unsecured obligation of First Banks and will rank subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of First Banks in the same manner as the Subordinated Debentures. 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 First Banks. First Banks expects from time to time to incur additional indebtedness constituting Senior Debt, Subordinated Debt and Additional Senior Obligations. The Guarantee will constitute a guarantee of payment and not of collection (that is, the guaranteed party may institute a legal proceeding directly against First Banks to enforce its rights under the Guarantee without first instituting a legal proceeding against any other Person). The Guarantee will not be discharged except by payment of the Guarantee Payments in full to the extent not paid by First Capital or upon distribution of the Subordinated Debentures to the holders of the Preferred Securities. Because First Banks is a holding company, the right of First Banks to participate in any distribution of assets of any Subsidiary Bank upon such Subsidiary Bank's liquidation or reorganization or otherwise is subject to the prior claims of creditors of that Subsidiary Bank, except to the extent First Banks may itself be recognized as a creditor of that Subsidiary Bank. First Banks' obligations under the Guarantee, therefore, will be effectively subordinated to all existing and future liabilities of First Banks' subsidiaries, and claimants should look only to the assets of First Banks for payments thereunder. 75 81 AMENDMENTS AND ASSIGNMENT Except with respect to any changes which do not materially adversely affect the rights of holders of the Preferred Securities (in which case no vote will be required), the Guarantee may not be amended without the prior approval of the holders of not less than a majority of the aggregate Liquidation Amount of the outstanding Preferred Securities. See ``Description of the Preferred Securities--Voting Rights; Amendment of Trust Agreement.'' All guarantees and agreements contained in the Guarantee will bind the successors, assigns, receivers, trustees and representatives of First Banks and will 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 First Banks 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 First Banks to enforce its rights under the Guarantee without first instituting a legal proceeding against First Capital, the Guarantee Trustee or any other Person. First Banks, as guarantor, is required to file annually with the Guarantee Trustee a certificate as to whether or not First Banks is in compliance with all the conditions and covenants applicable to it under the Guarantee. INFORMATION CONCERNING THE GUARANTEE TRUSTEE The Guarantee Trustee, other than during the occurrence and continuance of a default by First Banks 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 the Guarantee, must exercise the same degree of care and skill as a prudent person would exercise or use in the conduct of his or her own affairs. Subject to such provisions, 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 (a) full payment of the Redemption Price of the Preferred Securities, (b) full payment of the amounts payable upon liquidation of First Capital, or (c) 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 Missouri. EXPENSE AGREEMENT First Banks will, pursuant to the Agreement as to Expenses and Liabilities entered into by it under the Trust Agreement (the ``Expense Agreement''), irrevocably and unconditionally guarantee to each person or entity to whom First Capital becomes indebted or liable, the full payment of any costs, expenses or liabilities of First Capital, other than obligations of First Capital to pay to the holders of the Preferred Securities or other similar interests in First 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. Third party creditors of First Capital may proceed directly against First Banks under the Expense Agreement, regardless of whether such creditors had notice of the Expense Agreement. 76 82 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 First Capital has funds available for the payment of such Distributions) are irrevocably guaranteed by First Banks as and to the extent set forth under ``Description of the Guarantee.'' First Banks and First Capital believe that, taken together, the obligations of First Banks 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, on a subordinated basis, 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 the obligations of First Capital under the Preferred Securities. If and to the extent that First Banks does not make payments on the Subordinated Debentures, First Capital will not pay Distributions or other amounts due on the Preferred Securities. The Guarantee does not cover payment of Distributions when First 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 First Banks for enforcement of payment of such Distributions to such holder. The obligations of First Banks under the Guarantee are subordinate and junior in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of First Banks. 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 Trust 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) First Banks will pay for all and any costs, expenses and liabilities of First Capital (except the obligations of First Capital to holders of the Preferred Securities), and (iv) the Trust Agreement further provides that First Capital will not engage in any activity that is not consistent with the limited purposes of First Capital. ENFORCEMENT RIGHTS OF HOLDERS OF PREFERRED SECURITIES A holder of any Preferred Security may institute a legal proceeding directly against First Banks to enforce its rights under the Guarantee without first instituting a legal proceeding against the Guarantee Trustee, First Capital or any other Person. A default or event of default under any Senior Debt, Subordinated Debt or Additional Senior Obligations of First Banks would not constitute a default or Event of Default. In the event, however, of payment defaults under, or acceleration of, Senior Debt, Subordinated Debt or Additional Senior Obligations of First Banks, 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 FIRST CAPITAL The Preferred Securities evidence a preferred undivided beneficial interest in the assets of First Capital. First Capital exists for the sole purpose of issuing the Trust Securities and investing the proceeds thereof in Subordinated Debentures. A principal difference between the rights of a holder of a Preferred Security and the rights of a holder of a Subordinated Debenture is that a holder of a Subordinated Debenture is entitled to receive from First Banks the principal amount of and interest accrued on Subordinated Debentures held, while a holder of Preferred Securities is entitled to receive Distributions from First Capital (or from First Banks under the Guarantee) if and to the extent First Capital has funds available for the payment of such Distributions. 77 83 RIGHTS UPON TERMINATION Upon any voluntary or involuntary termination, winding-up or liquidation of First Capital involving the liquidation of the Subordinated Debentures, the holders of the Preferred Securities will be entitled to receive, out of assets held by First Capital, the Liquidation Distribution in cash. See ``Description of the Preferred Securities--Liquidation Distribution Upon Termination.'' Upon any voluntary or involuntary liquidation or bankruptcy of First Banks, the Property Trustee, as holder of the Subordinated Debentures, would be a subordinated creditor of First Banks, subordinated in right of payment to all Senior Debt, Subordinated Debt and Additional Senior Obligations of First Banks (as set forth in the Indenture), but entitled to receive payment in full of principal and interest before any shareholders of First Banks receive payments or distributions. Since First Banks is the guarantor under the Guarantee and has agreed to pay for all costs, expenses and liabilities of First Capital (other than the obligations of First Capital 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 shareholders of First Banks in the event of liquidation or bankruptcy of First Banks are expected to be substantially the same. DESCRIPTION OF OTHER CAPITAL STOCK COMMON STOCK The Amended and Restated Articles of Incorporation of First Banks (the ``Restated Articles'') authorize the issuance of 25,000 shares of common stock, $250 par value per share (the ``Common Stock''). Holders of Common Stock are entitled to receive, when and as declared by the Board of Directors, out of funds legally available for that purpose, dividends payable in cash, stock or otherwise. Each share of Common Stock is entitled to one vote on all matters except that shareholders have cumulative voting rights in the election of Directors of First Banks. On liquidation, the holders of Common Stock are entitled to receive pro rata any assets distributable to stockholders in respect of the Common Stock held by them after any required distributions to the holders of First Banks' preferred stock, including the Class A Preferred Stock, the Class B Preferred Stock and the Class C Preferred Stock. As of September 30, 1996, First Banks had outstanding 23,661 shares of Common Stock, all of which shares are owned by various trusts which were created by and are administered by and for the benefit of Mr. James F. Dierberg, Chairman of the Board, President and Chief Executive Officer of First Banks and members of his immediate family. All of the issued and outstanding shares are fully paid and nonassessable. The holders of the Common Stock, the Class A Preferred Stock and the Class B Preferred Stock and First Banks have entered into an agreement limiting the transferability of all such securities and providing for first rights of refusal with respect to proposed sales for such securities. PREFERRED STOCK The Restated Articles authorize, in addition to 750,000 shares of Class A Convertible, Adjustable Rate, $20 par value, Preferred Stock (the ``Class A Preferred Stock''), and 200,000 shares of Class B Adjustable Rate, $1.50 par value, Preferred Stock (the ``Class B Preferred Stock''), 5,000,000 shares of preferred stock, par value $1 per share, 2,200,000 of which have been designated Class C 9.00%, Cumulative, Increasing Rate, $25 stated value (defined herein as the ``Class C Preferred Stock''). The following is a summary of the terms of the Class A Preferred Stock, the Class B Preferred Stock and the Class C Preferred Stock. CLASS A PREFERRED STOCK DIVIDENDS. As and when declared by the Board of Directors of First Banks, the dividend rate on the Class A Preferred Stock for any quarterly period is 4% less than the higher of the Treasury Bill Rate or the Ten Year Treasury Constant Maturity Rate, calculated in the manner set forth in the Restated Articles, except that in no event may the dividend paid be less than 6% per annum or greater than 12% per annum. Dividends on the Class A Preferred Stock are noncumulative. REDEMPTION. The Class A Preferred Stock is redeemable at any time at the option of First Banks, with the prior written consent of the Federal Reserve, as long as dividends for all classes of preferred stock have been paid, at a redemption price of $21 per share (105% of the par value of the Class A Preferred Stock) plus declared and unpaid dividends to the date fixed for redemption. 78 84 LIQUIDATION. Holders of the Class A Preferred Stock are entitled to receive in a liquidation, dissolution or winding-up (either voluntary or involuntary) of First Banks, the par value per share plus a liquidation premium equal to 5% of the par value, in addition to all previously declared and unpaid dividends. CONVERTIBILITY. The Class A Preferred Stock is convertible at the option of the holder, into shares of Common Stock at a rate based on the ratio of the par value of the Class A Preferred Stock to the current market value of the Common Stock at the date of conversion as determined by independent appraisal at the time of conversion. The number of appraisers and the procedures by which the appraisers are to be selected are set forth in the Restated Articles. VOTING RIGHTS. Holders of the Class A Preferred Stock possess full voting rights and power as are enjoyed by the holders of the Common Stock, except that the right to vote the shares of the Class A Common Stock lapses upon the date of death of the first recorded holder of such shares or, if held in trust, upon the death of the income beneficiary of the trust. No shares of any capital stock of First Banks ranking prior to or on a parity with the Class A Preferred Stock may be issued by First Banks unless such issuance is approved by a vote of the holders of two-thirds of the issued and outstanding shares of Class A Preferred Stock. CLASS B PREFERRED STOCK DIVIDENDS. As and when declared by the Board of Directors of First Banks, the dividend rate on the Class B Preferred Stock for any quarterly period is 1% less than the higher of the Treasury Bill Rate or the Ten Year Treasury Constant Maturity Rate, calculated in the manner set forth in the Restated Articles, except that in no event may the dividend paid be less than 7% per annum or greater than 15% per annum. Dividends are noncumulative. REDEMPTION. The Restated Articles provide that the Class B Preferred Stock may not be redeemed. LIQUIDATION. Holders of the Class B Preferred Stock are entitled to receive in a liquidation, dissolution or winding-up (either voluntary or involuntary) of First Banks, the par value per share plus all previously declared and unpaid dividends. CONVERTIBILITY. The Class B Preferred Stock is not convertible into any other class of capital stock of First Banks. VOTING RIGHTS. Holders of the Class B Preferred Stock possess full voting rights and power as are enjoyed by the holders of the Common Stock. The right to vote the shares lapses, however, on and upon the date of sale, exchange, assignment, pledge, gift, bequest or other form of transfer of ownership to a party other than the first recorded holder of the Class B Preferred Stock or one of the lineal descendants of each holder or, if held in trust, one of the lineal descendants of the income beneficiary of said trust, except that the voting rights will not lapse because of (i) a transfer of Class B Preferred Stock to a personal representative of a deceased shareholder, or (ii) a pledge of Class B Preferred Stock by the first-recorded holder thereof to secure performance of obligations to another party or the subsequent foreclosure of such pledge or any subsequent transfers thereafter. No shares of any capital stock of First Banks ranking prior to or on a parity with the Class B Preferred Stock may be issued by First Banks unless such issuance is approved by a vote of the holders of two-thirds of the issued and outstanding shares of the Class B Preferred Stock. CLASS C PREFERRED STOCK DIVIDENDS. As and when declared by the Board of Directors of First Banks, the dividend rate on the Class C Preferred Stock is 9% per annum. On December 1, 1997, the annual dividend rate will increase by 0.75% to 9.75%, which will thereafter be the annual dividend rate. Dividends are cumulative. So long as any shares of Class C Preferred Stock remain outstanding, no dividend may be paid or declared and no other distribution made on the Class A Preferred Stock, the Class B Preferred Stock, the Common Stock or any other junior stock that may in the future be issued by First Banks (collectively, the ``Junior Stock'') other than a dividend payable in Junior Stock, and no shares of Junior Stock may be purchased, redeemed or otherwise acquired for consideration by First Banks, directly or indirectly (other than as a result of a reclassification of Junior Stock or the exchange or conversion of one Junior Stock for or into another Junior Stock, or other than through the use of the proceeds of a substantially contemporaneous sale of other Junior Stock) unless all dividends on shares of the cumulative preferred stock of all classes for all quarterly dividend periods ended prior to such action have been paid. Subject to the foregoing, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors of First Banks may be declared and paid on any Junior Stock from time to time out of any funds legally available therefore, and the Class C Preferred 79 85 Stock will not be entitled to participate in any such dividends, whether payable in cash, stock or otherwise. No dividends may be paid or declared upon any shares of any class or series of capital stock of First Banks ranking on a parity with the Class C Preferred Stock for any period unless all dividends payable on the Class C Preferred Stock for all quarterly dividend periods ended prior to the date of such payment or declaration have been paid. When dividends are not paid in full, as aforesaid, upon the Class C Preferred Stock and any other preferred stock ranking on a parity as to dividends with the Class C Preferred Stock, all dividends declared upon the Class C Preferred Stock and any other preferred stock ranking on a parity as to dividends with the Class C Preferred Stock will be declared pro rata so that the amount of dividends declared per share on the Class C Preferred Stock and such other preferred stock will in all cases bear to each other the same ratio that accumulated dividends per share on the Class C Preferred Stock and such other preferred stock bear to each other. No interest, or sum or money in lieu of interest, will be payable in respect of any dividend payment or payments on the shares of Class C Preferred Stock which may be in arrears. During any period in which a dividend payment or payments on the Class C Preferred Stock are in arrears, however, (i) no bonus or extraordinary salary may be paid to any officer of First Banks who is also the owner of more than 10% of the outstanding voting capital stock of First Banks, and (ii) no payments may otherwise be made to Mr. James F. Dierberg or his affiliates except for payments for products and services not in excess of the costs (excluding profits) incurred by Mr. Dierberg or his affiliates. REDEMPTION. The Class C Preferred Stock may not be redeemed prior to December 1, 1997. The Class C Preferred Stock may be redeemed in whole or in part, with not less than 40 nor more than 70 days notice, except as described below, on or after December 1, 1997, at the option of First Banks, at $25 per share plus all unpaid dividends calculated to the date of redemption. If any proposed redemption is for less than all of the outstanding shares, then the shares to be redeemed will be selected pro rata or by lot as determined by the Board of Directors of First Banks. The shares may not be redeemed without the prior approval of the Federal Reserve. LIQUIDATION. If First Banks is voluntarily or involuntarily liquidated, dissolved or its affairs wound up, the holders of the Class C Preferred Stock will have a preference of $25 per share plus all dividends accumulated and unpaid thereon to the date of payment, or such lesser amount remaining after the claims of all creditors have been satisfied, before any payments are made with respect to Junior Stock of First Banks or any other class of stock of First Banks ranking junior to the Class C Preferred Stock. In the event that upon any such voluntary or involuntary liquidation, the available assets of First Banks are insufficient to pay the full liquidation preference on the outstanding Class C Preferred Stock and the liquidation preferences on all shares of other classes or series of capital stock of First Banks ranking on a parity with the Class C Preferred Stock, the holders of all such shares will share ratably in any distribution of assets in proportion to the full amounts to which they would otherwise be respectively entitled. After payment of the full amount of the liquidation preference to which they are entitled, the holders of the Class C Preferred Stock will not be entitled to any further participation in any distribution of assets by First Banks. The consolidation or merger of First Banks with any entity will not be considered to constitute a liquidation, dissolution or winding up of First Banks. VOTING RIGHTS. Holders of the Class C Preferred Stock do not have any voting rights except as described below and except as may be expressly required by law. If at any time First Banks falls in arrears in the payment of dividends on the Class C Preferred Stock in an aggregate amount at least equal to the full accumulated dividends for six quarterly dividend periods, the number of directors of First Banks will be increased by two and the holders of the Class C Preferred Stock (and all classes of preferred stock ranking on parity therewith), voting separately on a noncumulative basis as a single class, will have the right to elect such two additional directors of First Banks, such right will continue until all dividends in arrears have been paid or declared and set apart for payment. The Class A Preferred Stock and Class B Preferred Stock will not vote with the Class C Preferred Stock for such purpose. The affirmative vote of the holders of at least 66 2/3% of the outstanding Class C Preferred Stock is required to amend the Restated Articles to create or authorize any class of stock ranking prior to the Class C Preferred Stock or to issue any class of stock to Mr. James F. Dierberg or any entity affiliated with Mr. Dierberg which would rank on a parity with the Class C Preferred Stock in respect of dividends or distribution of assets on liquidation or otherwise alter or abolish the liquidation preferences or any other preferential right of the Class C Preferred Stock, reduce the redemption price or otherwise alter any redemption rights of the Class C Preferred Stock, alter or abolish any right of 80 86 the holders of the Class C Preferred Stock to receive dividends, or exclude or limit the voting rights as to these matters. If dividends for any past quarterly dividend period are not paid on all outstanding Class C Preferred Stock, First Banks may not, without the consent of the holders of at least 66 2/3% shares of the then outstanding Class C Preferred Stock, purchase or redeem less than all then outstanding shares of Class C Preferred Stock; provided, however, that nothing will prevent the purchase or acquisition of the shares pursuant to a purchase or Class C Preferred Stock exchange offer made on the same terms to holders of all outstanding shares of Class C Preferred Stock. If at any time First Banks issues any class or series of preferred stock on a parity with the Class C Preferred Stock with respect to dividends and distributions on liquidation, holders of the Class C Preferred Stock will thereafter possess equivalent voting rights, if any, with such class or series. The voting rights for all classes or series of preferred stock, except the Class A Preferred Stock and the Class B Preferred Stock, will not, however, exceed 25% of the total voting rights of all outstanding capital stock of First Banks. TRANSFER AGENT. The transfer agent for the Class C Preferred Stock is Boatmen's Trust Company. CERTAIN FEDERAL INCOME TAX CONSEQUENCES GENERAL The following is a summary of the material United States federal income tax considerations that may be relevant to the purchasers of Preferred Securities which has been passed upon by Lewis, Rice & Fingersh, L.C., counsel to First Banks and First 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 (the ``Code''), regulations thereunder and current administrative rulings and court decisions, all of which are subject to change at any time, with possible retroactive effect. Subsequent changes may cause tax consequences to vary substantially from the consequences described below. Furthermore, the authorities on which the following summary is based are subject to various interpretations, and it is therefore possible that the United States 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. The following 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, such 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 First Banks intends to take the position that the Subordinated Debentures will be classified for United States federal income tax purposes as indebtedness of First Banks 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 First Banks 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 First Banks. 81 87 CLASSIFICATION OF FIRST CAPITAL Under current law and assuming full compliance with the terms of the Trust Agreement and Indenture (and certain other documents described herein), First 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. POTENTIAL EXTENSION OF INTEREST PAYMENT PERIOD AND ORIGINAL ISSUE DISCOUNT Because First Banks has the option, under the terms of the Subordinated Debentures, to defer (so long as no Debenture Event of Default has occurred and is continuing) 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 interest income generally and OID specifically, 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 FIRST CAPITAL Under certain circumstances, as described under ``Description of the Preferred Securities--Redemption or Exchange'' and ``--Liquidation Distribution Upon Termination,'' the Subordinated Debentures may be distributed to holders of Preferred Securities upon a liquidation of First Capital. Under current United States federal income tax law, such a distribution would be treated as a nontaxable event 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 First Capital would include the period for which such holder held the Preferred Securities. If, however, a Tax Event occurs which results in First 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 the Preferred Securities--Redemption or Exchange'' and ``--Liquidation Distribution Upon Termination.'' 82 88 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 generally 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. 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 On March 19, 1996, President Clinton proposed certain tax law changes that would, among other things, generally deny corporate issuers a deduction for interest in respect of certain debt obligations issued on or after December 7, 1995 (the ``Proposed Legislation'') if such debt obligations have a maximum term in excess of 20 years and are not shown as indebtedness on the issuer's applicable consolidated balance sheet. On March 29, 1996, Senate Finance Committee Chairman William V. Roth, Jr. and House Ways and Means Committee Chairman Bill Archer issued a joint statement (the ``Joint Statement'') indicating their intent that certain legislative proposals initiated by the Clinton administration, including the Proposed Legislation, that may be adopted by either of the tax-writing committees of Congress would have an effective date that is no earlier than the date of ``appropriate Congressional action.'' In addition, subsequent to the publication of the Joint Statement, Senator Daniel Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel wrote letters to Treasury Department officials concurring with the views expressed in the Joint Statement (the ``Democrat Letters''). Based upon the Joint Statement and the Democrat Letters, it is expected that if the Proposed Legislation were to be enacted, such legislation would not apply to the Subordinated Debentures. There can be no assurances, however, that the effective date guidance contained in the Joint Statement and the Democrat Letters will be incorporated into the Proposed Legislation, if enacted, or that other legislation enacted after the date hereof will not otherwise adversely affect the ability of First Banks to deduct the interest payable on the Subordinated Debentures. There can, therefore, be no assurance that a Tax Event will not occur. A Tax Event would permit First Banks, 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, March 31, 2002. See ``Description of the Subordinated Debentures--Redemption or Exchange'' and ``Description of the Preferred Securities--Redemption or Exchange--Tax Event Redemption or Investment Company Event Redemptions.'' 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. 83 89 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. ERISA CONSIDERATIONS 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''), generally 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, First Banks 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 with respect to which First Banks or an affiliate is a fiduciary or Plans for which First Banks or an affiliate provides services). 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 First Banks 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 First Banks 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. UNDERWRITING The Underwriters named below, represented by Stifel, Nicolaus & Company, Incorporated (the ``Representative''), have severally agreed, 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 forms a part, to purchase from First Capital the number of Preferred Securities set forth opposite their respective names below. The several Underwriters have agreed in the Underwriting Agreement, subject to the terms and conditions set forth therein, to purchase all the Preferred Securities offered hereby if any of the Preferred Securities are purchased. In the event of default by an Underwriter, the Underwriting Agreement provides that, in certain circumstances, purchase commitments of the nondefaulting Underwriters may be increased or the Underwriting Agreement may be terminated.
NUMBER OF UNDERWRITER PREFERRED SECURITIES ----------- -------------------- Stifel, Nicolaus & Company, Incorporated............................................................ --------- Total............................................................................................... 2,400,000 =========
84 90 The Representative has advised First Capital that it proposes initially to offer the Preferred Securities to the public at the public offering price set forth on the cover page of this Prospectus, and to certain dealers at such price less a concession not in excess of $ per Preferred Security. The Underwriters may allow, and such dealers may reallow, a discount not in excess of $ per Preferred Security to certain other dealers. After the initial public offering, the public offering price, concession and discount may be changed. In view of the fact that the proceeds of the sale of the Preferred Securities will be used to purchase the Subordinated Debentures of First Banks, the Underwriting Agreement provides that First Banks will pay as compensation to the Underwriters arranging the investment therein of such proceeds, an amount in immediately available funds of $ per Preferred Security (or $ in the aggregate) for the accounts of the several Underwriters. First Capital has granted the Underwriters an option to purchase up to an additional 360,000 Preferred Securities at the initial public offering price. Such option, which expires 30 days from the date of this Prospectus, may be exercised solely to cover over-allotments. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment, subject to certain conditions, to purchase approximately the same percentage of the additional Preferred Securities that the number of Preferred Securities to be purchased initially by the Underwriter is of the 2,400,000 Preferred Securities initially purchased by the Underwriters. To the extent that the Underwriters exercise their option to purchase additional Preferred Securities, First Capital will issue and sell to First Banks additional Common Securities and First Banks will issue and sell to First Capital Subordinated Debentures in an aggregate principal amount equal to the total aggregate Liquidation Amount of the additional Preferred Securities being purchased pursuant to the option. During a period of 30 days from the date of this Prospectus, neither First Capital nor First Banks will, subject to certain exceptions, without the prior written consent of the Representative, directly or indirectly, sell, offer to sell, grant any option for sale of, or otherwise dispose of, any Preferred Securities, any security convertible into or exchangeable into or exercisable for Preferred Securities or Subordinated Debentures or any debt securities substantially similar to the Subordinated Debentures or equity securities substantially similar to the Preferred Securities (except for Subordinated Debentures and the Preferred Securities offered hereby). Application has been made to have the Preferred Securities approved for quotation on The Nasdaq Stock Market's National Market. The Representative has advised First Capital that it presently intends to make a market in the Preferred Securities after the commencement of trading on The Nasdaq Stock Market's National Market, but no assurances can be made as to the liquidity of such Preferred Securities. The Representative will have no obligation to make a market in the Preferred Securities, however, and may cease market-making activities, if commenced, at any time. First Capital and First Banks have agreed to indemnify the Underwriters against, or contribute to payments that the Underwriters may be required to make in respect of, certain liabilities, including liabilities under the Securities Act. Certain of the Underwriters engage in transactions with, and, from time to time, have performed services for, First Banks and its subsidiaries in the ordinary course of business. 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 First Capital will be passed upon by Richards, Layton & Finger, special Delaware counsel to First Banks and First Capital. Certain legal matters for First Banks and First Capital, including the validity of the Guarantee and the Subordinated Debentures will be passed upon for First Banks and First Capital by Lewis, Rice & Fingersh, L.C., St. Louis, Missouri, counsel to First Banks and First Capital. Certain legal matters will be passed upon for the Underwriters by Bryan Cave LLP, St. Louis, Missouri. Lewis, Rice & Fingersh, L.C. 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 First Banks by Lewis, Rice & Fingersh, L.C. 85 91 EXPERTS The consolidated financial statements of First Banks and FCB are included in this Prospectus in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, for the periods indicated in their reports thereon which appear elsewhere herein and upon authority of said firm as experts in accounting and auditing. The consolidated financial statements of FCB are included in this Prospectus in reliance upon the report of Arthur Andersen LLP, independent certified public accountants, for the periods indicated in their reports thereon which appear elsewhere herein and upon authority of said firm as experts in accounting and auditing. On November 17, 1995, FCB's independent auditors, Arthur Andersen LLP, were dismissed. The independent auditors' report issued by Arthur Andersen LLP on FCB's consolidated financial statements as of and for the year ended December 31, 1994, as included herein, was modified as to uncertainty and contained an explanatory paragraph that described FCB's uncertain ability to continue as a going concern and the various regulatory agreements entered into by FCB and First Commercial with the FDIC, the California State Banking Department and the Federal Reserve Bank of San Francisco. There were no disagreements during 1994, or any preceding year, between FCB and Arthur Andersen LLP on any matters of accounting principles or practices, financial statement disclosure, or auditing scope of procedure, which disagreements, if not resolved to the satisfaction of Arthur Andersen LLP, would have caused it to make reference to the subject matter of the disagreements in connection with its report. On December 26, 1995, FCB engaged KPMG Peat Marwick LLP to serve as the new independent auditors and to report on FCB's consolidated financial statements as of and for the year ended December 31, 1995. This decision to change accountants was recommended by FCB's Board of Directors and approved by FCB's Audit Committee in conjunction with the acquisition of a majority ownership percentage of FCB by First Banks. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, previously filed by First Banks with the Securities and Exchange Commission pursuant to Section 13 of the Exchange Act, are incorporated herein by reference: (a) First Banks' Annual Report on Form 10-K for the year ended December 31, 1995; and (b) First Banks' Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996, June 30, 1996 and September 30, 1996. All reports and any definitive proxy or information statements filed by First Banks with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Preferred Securities offered hereby shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference 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. FIRST BANKS WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM THIS PROSPECTUS IS DELIVERED, ON THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE (OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS). WRITTEN REQUESTS FOR SUCH COPIES SHOULD BE DIRECTED TO THE OFFICE OF THE SECRETARY, FIRST BANKS, INC., 11901 OLIVE BLVD., ST. LOUIS, MISSOURI 63141. TELEPHONE REQUESTS MAY BE DIRECTED TO (314) 995-8700. AVAILABLE INFORMATION This Prospectus constitutes a part of a Registration Statement on Form S-2 (together with all amendments and exhibits thereto, the ``Registration Statement'') filed by First Banks and First Capital with the Commission under the Securities Act, with respect to the Preferred Securities and the Subordinated Debentures. This Prospectus does not contain all of the information set forth in such Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission, although it does include a summary of the material terms of the Indenture and the Trust Agreement. Reference is made to such Registration Statement and to the 86 92 exhibits relating thereto for further information with respect to the First Banks, First Capital, the Preferred Securities and the Subordinated Debentures. Any statements contained herein concerning the provisions of any document filed as an exhibit to the Registration Statement or otherwise filed with the Commission or incorporated by reference herein are not necessarily complete, and, in each instance, reference is made to the copy of such document so filed for a more complete description of the matter involved. Each such statement is qualified in its entirety by such reference. First Banks is subject to the informational requirements of the Exchange Act and, in accordance therewith, files reports, proxy statements and other information with the Commission. Such reports, proxy statements and other information can be inspected and copies at the following public reference facilities maintained by the Commission: 450 Fifth Street, N.W., Washington, D.C. 20549; 7 World Trade Center, Suite 1300, New York, New York 10048; and the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such material may also be obtained by mail from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, upon payment of prescribed rates. The Commission maintains in Internet web site that contains reports, proxy and information statements and other information regarding issuers who file electronically with the Commission. The address of that site is http://www.sec.gov. In addition, reports, proxy statements and other information concerning First Banks may be inspected at the offices of the National Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. No separate financial statements of First Capital have been included herein. First Banks does not consider that such financial statements would be material to holders of Preferred Securities because (i) all of the voting securities of First Capital will be owned by First Banks, a reporting company under the Exchange Act, (ii) First Capital has no independent operations but exists for the sole purpose of issuing securities representing undivided beneficial interests in the assets of First Capital and investing the proceeds thereof in Subordinated Debentures issued by First Banks, and (iii) the obligations of First Banks described herein to provide certain indemnities in respect of and be responsible for certain costs, expenses, debts and liabilities of First Capital under the Indenture and pursuant to the Trust Agreement, the guarantee issued by First Banks with respect to the Preferred Securities, the Subordinated Debentures purchased by First Capital and the related Indenture, taken together, constitute, in the belief of First Banks and First Capital, a full and unconditional guarantee of payments due on the Preferred Securities. See ``Description of the Subordinated Debentures'' and ``Description of the Guarantee.'' First Capital is not currently subject to the information reporting requirements of the Exchange Act. First Capital will become subject to such requirements upon the effectiveness of the Registration Statement, although it intends to seek and expects to receive an exemption therefrom. 87 93 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FIRST BANKS, INC. AND SUBSIDIARIES AUDITED CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Report........................................................................ F-2 Consolidated Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995 and 1994..... F-3 Consolidated Statements of Income for the nine months ended September 30, 1996 and 1995 (unaudited) and for each of the years ended December 31, 1995, 1994 and 1993.................................. F-5 Consolidated Statements of Changes in Stockholders' Equity for the nine months ended September 30, 1996 (unaudited) and for each of the years ended December 31, 1995, 1994 and 1993................. F-6 Consolidated Statements of Cash Flows for the nine months ended September 30, 1996 and 1995 (unaudited) and for each of the years ended December 31, 1995, 1994 and 1993...................... F-7 Notes to Consolidated Financial Statements.......................................................... F-8 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY AUDITED CONSOLIDATED FINANCIAL STATEMENTS Independent Auditors' Reports....................................................................... F-38 Consolidated Balance Sheets as of December 31, 1995 and 1994........................................ F-40 Consolidated Statements of Operations for each of the years ended December 31, 1995, 1994 and 1993.............................................................................................. F-42 Consolidated Statements of Changes in Stockholders' Equity for each of the years ended December 31, 1995, 1994 and 1993............................................................................... F-43 Consolidated Statements of Cash Flows for each of the years ended December 31, 1995, 1994 and 1993.............................................................................................. F-44 Notes to Consolidated Financial Statements.......................................................... F-45 Interim Consolidated Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995...... F-65 Interim Consolidated Statements of Operations for the nine months ended September 30, 1996 and 1995 (unaudited)....................................................................................... F-67
F-1 94 FIRST BANKS, INC. AND SUBSIDIARIES INDEPENDENT AUDITORS' REPORT KPMG PEAT MARWICK LLP The Board of Directors and Stockholders First Banks, Inc.: We have audited the accompanying consolidated balance sheets of First Banks, Inc. and subsidiaries (the Company) as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in stockholders' 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 an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above, present fairly, in all material respects, the financial position of First Banks, Inc. 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. /s/ KPMG PEAT MARWICK LLP St. Louis, Missouri March 8, 1996 F-2 95 FIRST BANKS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, SEPTEMBER 30, ------------------ 1996 1995 1994 ------------- ---- ---- ASSETS (UNAUDITED) Cash and cash equivalents: Cash and due from banks................................................ $ 121,788 128,553 91,028 Interest-bearing deposits with other financial institutions-- with maturities of three months or less.............................. 9,436 16,860 31,568 Federal funds sold..................................................... 51,200 53,800 8,700 ---------- --------- --------- Total cash and cash equivalents................................ 182,424 199,213 131,296 ---------- --------- --------- Investment securities: Available for sale, at fair value...................................... 473,275 471,791 355,958 Held to maturity, at amortized cost (estimated fair value of $25,839, $37,021 and $217,658 at September 30, 1996, December 31, 1995 and December 31, 1994, respectively)..................................... 25,510 36,532 231,920 ---------- --------- --------- Total investment securities.................................... 498,785 508,323 587,878 ---------- --------- --------- Loans: Commercial, financial and agricultural................................. 443,750 364,018 208,649 Real estate construction and development............................... 259,607 209,802 122,912 Real estate mortgage: Residential........................................................ 1,082,705 1,191,236 967,129 Commercial......................................................... 579,902 523,816 332,075 Consumer and installment............................................... 351,853 419,894 423,345 Loans held for sale.................................................... 23,687 45,035 20,344 ---------- --------- --------- Total loans.................................................... 2,741,504 2,753,801 2,074,454 Unearned discount...................................................... (8,478) (9,582) (884) Allowance for possible loan losses..................................... (45,365) (52,665) (28,410) ---------- --------- --------- Net loans...................................................... 2,687,661 2,691,554 2,045,160 ---------- --------- --------- Bank premises and equipment, net of accumulated depreciation and amortization............................................................. 48,521 50,278 43,661 Intangibles associated with the purchase of subsidiaries................... 20,882 23,841 13,257 Purchased mortgage servicing rights, net of amortization................... 10,678 12,122 5,755 Accrued interest receivable................................................ 22,851 22,027 16,741 Receivable from sales of investment securities............................. -- 41,265 -- Other real estate.......................................................... 10,298 7,753 6,740 Deferred income taxes...................................................... 41,898 41,576 21,132 Other assets............................................................... 22,156 25,010 7,950 ---------- --------- --------- Total assets................................................... $3,546,154 3,622,962 2,879,570 ========== ========= ========= See accompanying notes to consolidated financial statements.
F-3 96 FIRST BANKS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONTINUED) (DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, SEPTEMBER 30, ------------------ 1996 1995 1994 ------------- ---- ---- (UNAUDITED) LIABILITIES Deposits: Demand: Non-interest-bearing............................................... $ 393,401 389,658 290,039 Interest-bearing................................................... 289,535 307,584 268,212 Savings................................................................ 664,142 690,902 538,027 Time: Time deposits of $100 or more...................................... 149,695 201,025 113,381 Other time deposits................................................ 1,557,968 1,594,522 1,123,485 ---------- --------- --------- Total deposits................................................. 3,054,741 3,183,691 2,333,144 Federal Home Loan Bank advances............................................ 71,576 49,883 146,359 Federal funds purchased.................................................... 15,000 3,000 22,000 Securities sold under agreements to repurchase............................. 41,745 17,180 72,794 Other borrowings........................................................... -- 1,478 2,331 Notes payable.............................................................. 66,840 88,135 46,203 Accrued interest payable................................................... 9,641 10,726 7,606 Deferred income taxes...................................................... 9,991 6,517 6,037 Accrued and other liabilities.............................................. 19,172 15,310 11,726 Minority interest in subsidiaries.......................................... 13,856 12,437 14,058 ---------- --------- --------- Total liabilities.............................................. 3,302,562 3,388,357 2,662,258 ---------- --------- --------- STOCKHOLDERS' EQUITY Preferred stock: Class C 9.00% increasing rate, redeemable, cumulative, $1.00 par value, $25.00 stated value; 5,000,000 shares authorized, 2,191,000 shares issued and outstanding at September 30, 1996 and 2,200,000 issued and outstanding at December 31, 1995 and 1994............................ 54,775 55,000 55,000 Class A, convertible, adjustable rate, $20.00 par value; 750,000 shares authorized; 641,082 shares issued and outstanding.................... 12,822 12,822 12,822 Class B, adjustable rate, $1.50 par value; 200,000 shares authorized, 160,505 shares issued and outstanding................................ 241 241 241 Common stock, $250.00 par value; 25,000 shares authorized; 23,661 shares issued and outstanding................................................... 5,915 5,915 5,915 Capital surplus............................................................ 4,237 4,307 4,479 Retained earnings.......................................................... 163,894 156,692 137,957 Net fair value adjustment for securities available for sale................ 1,708 (372) 898 ---------- --------- --------- Total stockholders' equity..................................... 243,592 234,605 217,312 ---------- --------- --------- Total liabilities and stockholders' equity..................... $3,546,154 3,622,962 2,879,570 ========== ========= ========= See accompanying notes to consolidated financial statements.
F-4 97 FIRST BANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ----------------- -------------------------- 1996 1995 1995 1994 1993 ---- ---- ---- ---- ---- Interest income: (UNAUDITED) Interest and fees on loans........................................ $175,260 161,912 221,934 129,583 110,813 Investment securities: Taxable....................................................... 16,999 26,504 34,379 29,385 26,635 Nontaxable.................................................... 967 1,058 1,390 1,468 1,121 Federal funds sold and other...................................... 3,782 2,577 3,918 1,999 1,443 -------- ------- ------- ------- ------- Total interest income..................................... 197,008 192,051 261,621 162,435 140,012 -------- ------- ------- ------- ------- Interest expense: Deposits: Interest-bearing demand....................................... 3,530 4,238 5,760 4,421 4,008 Savings....................................................... 16,953 16,675 22,737 15,198 11,947 Time deposits of $100 or more................................. 6,960 6,381 9,315 3,300 2,496 Other time deposits........................................... 66,060 55,718 78,250 41,170 38,635 Federal Home Loan Bank advances................................... 1,954 10,699 12,548 3,443 527 Federal funds purchased and securities sold under agreements to repurchase....................................................... 762 2,190 3,352 1,565 253 Interest rate exchange agreements, net............................ 6,035 5,168 6,911 490 -- Notes payable and other borrowings................................ 4,326 5,281 6,072 1,083 192 -------- ------- ------- ------- ------- Total interest expense.................................... 106,580 106,350 144,945 70,670 58,058 -------- ------- ------- ------- ------- Net interest income....................................... 90,428 85,701 116,676 91,765 81,954 Provision for possible loan losses.................................... 8,774 8,449 10,361 1,858 4,456 -------- ------- ------- ------- ------- Net interest income after provision for possible loan losses................................................. 81,654 77,252 106,315 89,907 77,498 -------- ------- ------- ------- ------- Noninterest income: Service charges on deposit accounts and customer service fees..... 9,411 7,634 10,661 8,300 6,821 Credit card fees.................................................. 1,897 1,615 2,179 1,746 1,231 Loan servicing fees, net.......................................... 2,027 2,286 2,932 1,645 1,163 Gain (loss) on mortgage loans sold and held for sale.............. (7) (622) (608) 126 (1,693) Net gain (loss) on sales of securities............................ (421) 2,765 (866) (290) 155 Gain on sale of mortgage loan servicing rights.................... -- 3,843 3,843 -- -- Loss on cancellation of interest rate exchange agreements......... -- (3,342) (3,342) -- -- Other income...................................................... 2,891 3,463 4,608 2,107 2,276 -------- ------- ------- ------- ------- Total noninterest income.................................. 15,798 17,642 19,407 13,634 9,953 -------- ------- ------- ------- ------- Noninterest expense: Salaries and employee benefits.................................... 30,085 27,938 37,941 28,337 22,087 Occupancy, net of rental income................................... 7,245 6,244 8,709 5,260 4,450 Furniture and equipment........................................... 5,404 4,982 6,852 5,209 4,783 Federal Deposit Insurance Corporation premiums.................... 11,355 3,810 4,911 4,484 4,289 Postage, printing and supplies.................................... 3,660 3,360 4,678 3,304 3,000 Data processing fees.............................................. 3,479 3,560 4,838 3,733 2,929 Legal, examination and professional fees.......................... 3,620 3,975 5,412 3,562 2,369 Credit card expenses.............................................. 2,149 1,762 2,490 2,455 1,843 Communications.................................................... 1,992 1,744 2,476 1,816 1,235 Advertising....................................................... 1,253 1,473 2,182 1,767 1,313 Losses and expenses on foreclosed real estate, net of gains....... 951 539 1,302 792 28 Other expenses.................................................... 10,044 7,314 9,775 7,015 5,105 -------- ------- ------- ------- ------- Total noninterest expense................................. 81,237 66,701 91,566 67,734 53,431 -------- ------- ------- ------- ------- Income before provision for income taxes, minority interest in (income) loss of subsidiaries and cumulative effect of change in accounting principle.... 16,215 28,193 34,156 35,807 34,020 Provision for income taxes............................................ 4,304 9,414 11,038 12,012 11,592 -------- ------- ------- ------- ------- Income before minority interest in (income) loss of subsidiaries and cumulative effect of change in accounting principle................................... 11,911 18,779 23,118 23,795 22,428 Minority interest in (income) loss of subsidiaries.................... (472) 816 1,353 237 -- -------- ------- ------- ------- ------- Income before cumulative effect of change in accounting principle.............................................. 11,439 19,595 24,471 24,032 22,428 Cumulative effect of change in accounting principle................... -- -- -- -- 766 -------- ------- ------- ------- ------- Net income................................................ 11,439 19,595 24,471 24,032 23,194 Preferred stock dividends............................................. 4,237 4,237 5,736 5,735 5,766 -------- ------- ------- ------- ------- Net income available to common stockholders............... $ 7,202 15,358 18,735 18,297 17,428 ======== ======= ======= ======= ======= Earnings per common share (primary): Income before cumulative effect of change in accounting principle........................................................ $ 304.39 649.08 791.82 773.31 709.10 Cumulative effect of change in accounting principle............... -- -- -- -- 32.59 -------- ------- ------- ------- ------- Primary earnings per share................................ $ 304.39 649.08 791.82 773.31 741.69 ======== ======= ======= ======= ======= Earnings per common share (fully diluted): Income before cumulative effect of change in accounting principle........................................................ $ 302.68 617.39 758.66 734.80 661.42 Cumulative effect of change in accounting principle............... -- -- -- -- 29.01 -------- ------- ------- ------- ------- Fully diluted earnings per share.......................... $ 302.68 617.39 758.66 734.80 690.43 ======== ======= ======= ======= ======= Weighted average shares of common stock outstanding................... 23,661 23,661 23,661 23,661 23,498 ======== ======= ======= ======= ======= See accompanying notes to consolidated financial statements.
F-5 98 FIRST BANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA) THREE YEARS ENDED DECEMBER 31, 1995 AND NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
CLASS C ADJUSTABLE RATE NET FAIR PREFERRED PREFERRED STOCK VALUE ADJUST- STOCK, ------------------ MENT FOR TOTAL INCREASING CLASS A, SECURITIES STOCK- RATE, CONVER- COMMON CAPITAL RETAINED AVAILABLE HOLDERS' REDEEMABLE TIBLE CLASS B STOCK SURPLUS EARNINGS FOR SALE EQUITY ---------- -------- ------- ------ ------- -------- ------------- -------- Consolidated balances, January 1, 1993.................................. $ 55,000 14,822 241 5,786 2,733 102,232 -- 180,814 Year ended December 31, 1993: Consolidated net income............. -- -- -- -- -- 23,194 -- 23,194 Conversion of 100,000 shares of Class A preferred stock into 516.83 shares of common stock..... -- (2,000) -- 129 1,871 -- -- -- Class C preferred stock dividends, $2.25 per share................... -- -- -- -- -- (4,950) -- (4,950) Class A preferred stock dividends, $1.20 per share................... -- -- -- -- -- (799) -- (799) Class B preferred stock dividends, $.11 per share.................... -- -- -- -- -- (17) -- (17) Net fair value adjustment for securities available for sale..... -- -- -- -- -- -- 3,602 3,602 --------- ------ ------ ----- ----- ------- ----- ------- Consolidated balances, December 31, 1993.................................. 55,000 12,822 241 5,915 4,604 119,660 3,602 201,844 Year ended December 31, 1994: Consolidated net income............. -- -- -- -- -- 24,032 -- 24,032 Class C preferred stock dividends, $2.25 per share................... -- -- -- -- -- (4,950) -- (4,950) Class A preferred stock dividends, $1.20 per share................... -- -- -- -- -- (768) -- (768) Class B preferred stock dividends, $.11 per share.................... -- -- -- -- -- (17) -- (17) Effect of capital stock transactions of majority owned subsidiary...... -- -- -- -- (125) -- -- (125) Net fair value adjustment for securities available for sale..... -- -- -- -- -- -- (2,704) (2,704) --------- ------ ------ ----- ----- ------- ----- ------- Consolidated balances, December 31, 1994.................................. 55,000 12,822 241 5,915 4,479 137,957 898 217,312 Year ended December 31, 1995: Consolidated net income............. -- -- -- -- -- 24,471 -- 24,471 Class C preferred stock dividends, $2.25 per share................... -- -- -- -- -- (4,950) -- (4,950) Class A preferred stock dividends, $1.20 per share................... -- -- -- -- -- (769) -- (769) Class B preferred stock dividends, $.11 per share.................... -- -- -- -- -- (17) -- (17) Effect of capital stock transactions of majority owned subsidiary...... -- -- -- -- (172) -- -- (172) Net fair value adjustment for securities available for sale..... -- -- -- -- -- -- (1,270) (1,270) --------- ------ ------ ----- ----- ------- ----- ------- Consolidated balances, December 31, 1995.................................. 55,000 12,822 241 5,915 4,307 156,692 (372) 234,605 Nine months ended September 30, 1996 (Unaudited): Consolidated net income............. -- -- -- -- -- 11,439 -- 11,439 Class C preferred stock dividends, $1.69 per share................... -- -- -- -- -- (3,713) -- (3,713) Class A preferred stock dividends, $.90 per share.................... -- -- -- -- -- (513) -- (513) Class B preferred stock dividends, $.08 per share.................... -- -- -- -- -- (11) -- (11) Purchase and retirement of Class C preferred shares.................. (225) -- -- -- (5) -- -- (230) Effect of capital stock transactions of majority owned subsidiary...... -- -- -- -- (65) -- -- (65) Net fair value adjustment for securities available for sale..... -- -- -- -- -- -- 2,080 2,080 --------- ------ ------ ----- ----- ------- ----- ------- Consolidated balances, September 30, 1996.................................. $ 54,775 12,822 241 5,915 4,237 163,894 1,708 243,592 ========= ====== ====== ===== ===== ======= ===== ======= See accompanying notes to consolidated financial statements.
F-6 99 FIRST BANKS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS EXPRESSED IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31, ------------------ ------------------------------ 1996 1995 1995 1994 1993 ---- ---- ---- ---- ---- (UNAUDITED) Cash flows from operating activities: Income before cumulative effect of change in accounting principle.................................................. $ 11,439 19,595 24,471 24,032 22,428 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization of bank premises and equipment.............................................. 4,314 3,997 5,534 4,164 3,936 Amortization, net of accretion........................... 3,360 3,107 4,520 5,364 7,180 Originations and purchases of loans held for sale........ (104,923) (33,434) (67,005) (80,630) (273,395) Proceeds from the sale of loans held for sale............ 91,336 173,873 207,077 167,942 267,828 Provision for possible loan losses....................... 8,774 8,449 10,361 1,858 4,456 Provision for income taxes currently payable............. 4,304 9,414 11,039 12,012 11,568 Payments of income taxes................................. (5,018) (385) (1,105) (12,125) (9,957) (Increase) decrease in accrued interest receivable....... (824) 568 1,320 (469) 1,517 Interest accrued on liabilities.......................... 106,579 106,450 144,946 70,670 58,058 Payments of interest on liabilities...................... (107,665) (106,350) (145,066) (69,370) (60,100) Other operating activities, net.......................... 7,028 (2,545) (5,190) (883) 838 Minority interest in income (loss) of subsidiary......... 453 (815) (1,353) (237) -- --------- -------- -------- -------- -------- Net cash provided by operating activities............ 19,157 181,924 189,549 122,328 34,357 --------- -------- -------- -------- -------- Cash flows from investing activities: Cash paid for acquired entities, net of cash and cash equivalents received....................................... -- 51,275 54,458 (24,171) 4,466 Sales of investment securities of acquired entity............ -- 86,723 88,334 133,990 -- Sales of investment securities available for sale............ 83,616 170,270 279,537 145,757 16,128 Maturities of investment securities available for sale....... 299,362 119,927 147,395 262,953 450,395 Maturities of investment securities held to maturity......... 9,049 22,423 36,469 94,359 -- Purchases of investment securities available for sale........ (337,979) (175,107) (282,599) (235,093) (468,279) Purchases of investment securities held to maturity.......... (596) (2,250) (2,397) (81,096) -- Net (increase) decrease in loans............................. (4,566) (103,938) (71,211) (458,172) 32,315 Recoveries of loans previously charged-off................... 5,229 3,247 4,859 5,169 5,152 Purchases of bank premises and equipment..................... (2,550) (4,056) (5,337) (4,190) (2,775) Interest rate futures contracts, net......................... -- -- (22,167) 7,469 -- Other investing activities................................... 10,420 (32,042) 3,946 (3,285) 6,360 --------- -------- -------- -------- -------- Net cash provided by (used in) investing activities........................................ 61,985 136,472 231,287 (156,310) 43,762 --------- -------- -------- -------- -------- Cash flows from financing activities: Other increases (decreases) in deposits: Demand and savings deposits.............................. (41,067) (82,306) (123,260) (77,075) 17,405 Time deposits............................................ (87,883) 51,862 55,885 38,151 (53,653) Increase (decrease) in federal funds purchased............... 12,000 (70,300) (67,300) 18,000 -- Increase (decrease) in Federal Home Loan Bank advances....... 21,693 (84,157) (170,644) 11,464 (15,900) Increase (decrease) in securities sold under agreements to repurchase................................................. 24,565 (55,496) (55,615) 40,762 (10,509) Increase (decrease) in notes payable......................... (22,772) 17,639 13,751 47,493 (30,038) Purchase and retirement of Class C preferred shares.......... (230) -- -- -- -- Payment of preferred stock dividends......................... (4,237) (4,237) (5,736) (5,735) (5,766) --------- -------- -------- -------- -------- Net cash provided by (used in) financing activities........................................ (97,931) (226,995) (352,919) 73,060 (98,461) --------- -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents....................................... (16,789) 91,401 67,917 39,078 (20,342) Cash and cash equivalents, beginning of period................... 199,213 131,296 131,296 92,218 112,560 --------- -------- -------- -------- -------- Cash and cash equivalents, end of period......................... $ 182,424 222,697 199,213 131,296 92,218 ========= ======== ======== ======== ======== Noncash investing and financing activities: Loans transferred to foreclosed real estate.................. $ 7,332 1,893 5,395 5,030 1,496 Loans to facilitate sale of foreclosed real estate........... 168 213 587 1,724 1,270 Investment securities transferred to available for sale...... -- -- 174,113 -- 283,624 Receivable from sale of investment securities................ -- -- 41,265 -- -- Loans transferred to held for sale........................... -- 146,991 146,991 -- -- ========= ======== ======== ======== ======== See accompanying notes to consolidated financial statements.
F-7 100 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements of First Banks, Inc. and subsidiaries (First Banks) have been prepared in accordance with generally accepted accounting principles and conform to practices prevalent among financial institutions. The following is a summary of the more significant policies followed by First Banks: BUSINESS First Banks provides a full range of banking services to individual and corporate customers through its subsidiaries located in Missouri, Illinois, California and Texas. First Banks and its banking and thrift subsidiaries are subject to the regulations of certain federal and state agencies and undergo periodic examinations by these regulatory agencies. BASIS OF PRESENTATION In preparing the consolidated financial statements, management of First Banks is required to make estimates and assumptions which significantly affect the reported amounts of assets, liabilities, income and expenses. The most significant estimate, which is particularly susceptible to change in the near-term, relates to the determination of the allowance for possible loan losses. While management uses relevant information to recognize potential losses on loans, changes in economic conditions and customer conditions could cause actual experience to differ from that anticipated. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of First Banks, Inc. and all of its subsidiaries, net of minority interest, as more fully described below. All significant intercompany accounts and transactions have been eliminated in consolidation. First Banks operates primarily through two wholly owned bank subsidiaries, two wholly owned thrift subsidiaries, one wholly owned bank holding company subsidiary and two majority owned bank holding company subsidiaries. First Banks' subsidiary financial institutions (Subsidiary Banks) are: First Bank, headquartered in St. Louis County, Missouri (First Bank (Missouri)); First Bank, headquartered in O'Fallon, Illinois (First Bank (Illinois)); First Bank FSB, headquartered in St. Louis County, Missouri (First Bank FSB); First Banks America, Inc., headquartered in Houston, Texas (FBA); CCB Bancorp, Inc., headquartered in Santa Ana, California (CCB); First Commercial Bancorp, Inc., headquartered in Sacramento, California (FCB); and St. Charles Federal Savings and Loan Association, headquartered in St. Charles, Missouri (St. Charles Federal). CCB Bancorp, Inc., a wholly owned bank holding company subsidiary, operates through First Bank & Trust, headquartered in Irvine, California (FB&T), La Cumbre Savings Bank F.S.B., headquartered in Santa Barbara, California (La Cumbre), and Queen City Bank, N.A., headquartered in Long Beach, California (Queen City). FBA, a majority-owned bank holding company subsidiary, operates through BankTEXAS N.A., headquartered in Houston, Texas (BTX). First Banks owned 65.41% and 64.60% of FBA at December 31, 1995 and 1994, respectively. FCB, a majority-owned bank holding company subsidiary, operates through First Commercial Bank, headquartered in Sacramento, California (First Commercial). First Bank acquired its interest in FCB in a series of transactions beginning in August 1995. First Banks owned 93.29% of FCB at December 31, 1995. In addition to the Subsidiary Banks, First Banks owns FirstServ, Inc. Through a facilities management agreement with First Services, L.P., FirstServ, Inc. provides data processing services and operational support for First Banks. F-8 101 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CASH AND CASH EQUIVALENTS First Banks' subsidiaries maintain deposit balances with various banks which are necessary for check collection and account activity charges. Cash in excess of immediate requirements is invested on a daily basis in federal funds or interest-bearing deposits with other financial institutions. Cash, due from banks, federal funds sold, and interest-bearing deposits with original maturities of three months or less are considered to be cash and cash equivalents for purposes of the consolidated statements of cash flows. First Banks' subsidiaries are required to maintain certain daily reserve balances on hand in accordance with regulatory requirements. The reserve balances maintained in accordance with such requirements at December 31, 1995 and 1994 were $38.2 million and $31.5 million, respectively. INVESTMENT SECURITIES The classification of investment securities as available for sale or held to maturity is determined at the date of purchase. First Banks does not engage in the trading of investment securities. Investment securities designated as available for sale, which include any security which First Banks has no immediate plan to sell but which may be sold in the future under different circumstances, are stated at fair value. Unrealized gains and losses with respect to available for sale securities are recorded, net of related income tax effects, in a separate component of stockholders' equity. When securities designated as available for sale are sold, the resulting realized gains and losses are included in noninterest income upon commitment to sell, based on the amortized cost of each individual security sold. All previous fair value adjustments included in the separate component of stockholders' equity are reversed upon sale. Investment securities designated as held to maturity, which include any security for which First Banks has the positive intent and ability to hold to maturity, are stated at cost, net of amortization of premiums and accretion of discounts computed on the level yield method taking into consideration the level of current and anticipated prepayments. As more fully described in Note 3 to the accompanying consolidated financial statements, in 1995 First Banks reclassified $174.1 million of held-to-maturity investment securities to available-for-sale investment securities. LOANS HELD FOR PORTFOLIO Loans held for portfolio are carried at cost, adjusted for amortization of premiums and accretion of discounts using a method which approximates the level yield method. Interest and fees on loans are recognized as income using the interest method. Loans held for portfolio are stated at cost as First Banks has the ability and it is management's intention to hold them to maturity. The accrual of interest on loans is discontinued when it appears that interest or principal may not be paid in a timely manner in the normal course of business. Generally, payments received on nonaccrual loans are recorded as principal reductions. Interest income is recognized after all principal has been repaid or an improvement in the condition of the loan has occurred which would warrant resumption of interest accruals. First Banks adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan (SFAS 114) and SFAS No. 118, Accounting by Creditors for Impairment of a Loan--Income Recognition and Disclosures (SFAS 118), which amends SFAS 114, on January 1, 1995. SFAS 114 defines the recognition criterion for loan impairment and the measurement methods for certain impaired loans and loans whose terms have been modified in troubled-debt restructurings. SFAS 118 amends SFAS 114 to allow a creditor to use existing methods for recognizing interest income on an impaired loan. First Banks has elected to continue to use its existing methods for recognizing interest on impaired loans. First Banks continues to apply all payments received to the outstanding balance of the impaired loan until the collection of the outstanding balance is no longer in doubt. When this occurs, interest payments are recorded as interest income, until an improvement in the condition of the loan has occurred which would warrant resumption of interest accruals. F-9 102 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In accordance with SFAS 114, in-substance foreclosures have been reclassified to loans. This reclassification did not significantly affect First Banks' financial condition or results of operations. The initial application of SFAS 114 and SFAS 118 did not have a material effect on First Banks' financial position and resulted in no additional provision for possible loan losses. LOANS HELD FOR SALE Mortgage loans held for sale are carried at the lower of cost or market value which is determined on an individual loan basis. Gains or losses on the sale of loans held for sale are determined on a specific identification method. LOAN SERVICING INCOME Loan servicing income represents fees earned for servicing real estate mortgage loans owned by investors, net of federal agency guarantee fees, interest shortfall, and amortization of the cost of purchased loan servicing rights. The fees are generally calculated on the outstanding principal balance of the loans serviced and are recorded as income when earned. ALLOWANCE FOR POSSIBLE LOAN LOSSES The allowance for possible loan losses is maintained at a level considered adequate to provide for potential losses. The provision for possible loan losses is based on a periodic analysis of the loans held for portfolio and held for sale, considering, among other factors, current economic conditions, loan portfolio composition, past loan loss experience, independent appraisals, loan collateral and payment experience. In addition to the allowance for estimated losses on identified problem loans, an overall unallocated allowance is established to provide for unidentified credit losses which are inherent in the portfolio. As adjustments become necessary, they are reflected in the results of operations in the periods in which they become known. BANK PREMISES AND EQUIPMENT Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed primarily using the straight-line method over the estimated useful lives of the related assets. Amortization of leasehold improvements is calculated using the straight-line method over the shorter of the useful life of the improvement or term of the lease. Bank premises and improvements are depreciated over five to 50 years and equipment over two to seven years. INTANGIBLES ASSOCIATED WITH THE PURCHASE OF SUBSIDIARIES Intangibles associated with the purchase of subsidiaries include excess of cost over net assets acquired and deposit base premium. The excess of cost over net assets acquired of purchased subsidiaries is amortized using the straight-line method over the estimated periods to be benefited, which range from approximately 10 to 15 years. In various acquisitions, First Banks has recorded the valuation of the deposit base premium, representing the estimated present value of the future net income to be generated from the deposits which existed at the dates of acquisition. This premium is amortized using various accelerated methods over the expected lives of the deposit bases, which range from seven to 10 years. PURCHASED MORTGAGE SERVICING RIGHTS Purchased mortgage servicing rights are amortized in proportion to the related estimated net servicing income on a disaggregated, discounted basis over the estimated lives of the related mortgages considering the level of current and anticipated repayments, which range from five to 12 years. F-10 103 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) OTHER REAL ESTATE Other real estate, consisting of real estate acquired through foreclosure or deed in lieu of foreclosure, is stated at the lower of fair value less applicable selling costs or cost at the time the property is acquired. The excess of cost over fair value of other real estate at the date of acquisition is charged to the allowance for possible loan losses. Subsequent reductions in carrying value to reflect current fair value or costs incurred in maintaining the properties are charged to expense as incurred. Sales of other real estate are recorded when the title to the property has passed to the purchaser, minimum down payment requirements have been met, the terms of any notes received by First Banks satisfy continuing payment requirements, and First Banks is relieved of any requirement for continued involvement in the property. INCOME TAXES First Banks, Inc. and its eligible subsidiaries file a consolidated federal income tax return and unitary or consolidated state income tax returns in California, Illinois and Missouri. In addition, First Bank (Missouri), First Bank FSB and St. Charles Federal are subject to a financial institutions tax which is based on income. The unitary Illinois and California income tax returns include the investment in FBA because First Banks' ownership is greater than 50%. FBA and its eligible subsidiaries file a consolidated federal income tax return which is separate from that of First Banks. As described in Note 10 to the consolidated financial statements, First Banks has adopted the method of accounting for income taxes set forth in SFAS No. 109, Accounting for Income Taxes (SFAS 109). SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Subsidiaries of First Banks enter into sales of securities under agreements to repurchase at a specified future date. Such repurchase agreements are considered financing agreements and, accordingly, the obligation to repurchase assets sold is reflected as a liability in the consolidated balance sheets. Repurchase agreements are collateralized by debt and mortgage-backed securities. EARNINGS PER COMMON SHARE Earnings per common share data is calculated using the weighted average number of shares of common stock outstanding during each period. The Class A, Class B, and Class C preferred stock are not common stock equivalents. The Class A preferred stock has been reflected in fully diluted earnings per share because of its conversion feature, using the if-converted method. FINANCIAL INSTRUMENTS A financial instrument is defined as cash, evidence of an ownership interest in an entity, or a contract that conveys or imposes on an entity the contractual right or obligation to either receive or deliver cash or another financial instrument. During October 1994, the FASB issued SFAS No. 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments (SFAS 119). SFAS 119 requires disclosures about the amounts, nature and terms of derivative financial instruments that are not subject to SFAS No. 105, Disclosure of Information About Financial Instruments With Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk. SFAS 119 requires that a distinction be made between financial instruments held or issued for trading purposes and financial instruments held or issued for purposes other than trading. First Banks implemented SFAS 119 on December 31, 1994, which resulted in no effect on the consolidated financial statements other than the additional disclosure requirements presented in Note 11. F-11 104 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK First Banks utilizes financial instruments to reduce the interest rate risk arising from its financial assets and liabilities. These instruments involve, in varying degrees, elements of interest rate risk and credit risk in excess of the amount recognized in the consolidated balance sheets. Risk that interest rates may move unfavorably from the perspective of First Banks is defined as interest rate risk. The risk that a counterparty to an agreement entered into by First Banks may default is defined as credit risk. These financial instruments include interest rate swap, floor and cap agreements; interest rate futures contracts; and forward contracts to sell mortgage-backed securities. First Banks is party to commitments to extend credit and commercial and standby letters of credit in the normal course of business to meet the financing needs of its customers. These commitments involve, in varying degrees, elements of interest rate risk and credit risk in excess of the amount recognized in the consolidated balance sheets. INTEREST RATE SWAP, FLOOR AND CAP AGREEMENTS First Banks enters into interest rate swap, floor and cap agreements to manage interest rate risk. The purpose of entering into these agreements is to reduce the future impact of unfavorable interest rate fluctuations on certain of First Banks' interest-bearing liabilities. Interest rate swap, floor and cap agreements are accounted for on an accrual basis with the net interest differential being recognized as an adjustment to interest expense of the related liability. Premiums and fees paid upon the purchase of interest rate swap, floor and cap agreements are amortized to interest expense over the life of the agreement using the interest method. In the event of early termination of these derivative financial instruments, the net proceeds received or paid are deferred and amortized over the shorter of the remaining contract life of the derivative financial instrument or the maturity of the related liability. If, however, the amount of the underlying hedged liability is repaid, then the gains or losses on the agreements are recognized immediately in the consolidated statements of income. The unamortized premiums, fees paid and deferred losses on early terminations are included in other assets in the accompanying consolidated balance sheets. INTEREST RATE FUTURES CONTRACTS Interest rate futures contracts were utilized to manage the interest rate risk of the securities available for sale portfolio until the fourth quarter of 1995. Gains and losses on interest rate futures, which qualify as hedges, are deferred. Amortization of the net deferred gains or losses is applied to the interest income of the securities available-for-sale portfolio using the straight-line method. The net deferred gains and losses are applied to the carrying value of the securities available-for-sale portfolio as part of the mark-to-market valuation. In the event the hedged assets are sold, the related gain or loss of the interest rate futures contracts is immediately recognized in the consolidated statements of income. FORWARD CONTRACTS TO SELL MORTGAGE-BACKED SECURITIES Forward contracts to sell mortgage-backed securities are utilized to manage the interest rate risk of the residential fixed-rate mortgage loan commitments and loans held for sale. Gains and losses on forward contracts, which qualify as hedges, are deferred. The net unamortized balance of such deferred gains and losses is applied to the carrying value of the loans held for sale as part of the lower of cost or market valuation. RECLASSIFICATIONS Certain 1994 and 1993 amounts have been reclassified to conform with the classifications and format used for 1995. (2) ACQUISITIONS On November 30, 1993, First Banks completed its acquisition of American Home Savings and Loan Association, St. Louis County, Missouri (American), in exchange for $1.0 million in cash and subsequently merged American with F-12 105 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) First Banks' wholly owned subsidiary, First Bank FSB. The American acquisition added four banking locations and $47 million in assets. The acquisition was funded from available cash of First Banks. The transaction was accounted for using the purchase method of accounting and, accordingly, the consolidated financial statements include the financial position and results of operations for the period subsequent to the acquisition date and the assets acquired and liabilities assumed were recorded at fair value at the acquisition date. On January 3, 1994, First Banks completed its acquisition of First Federal Savings Bank of Proviso Township, Chicago, Illinois (First Federal) in exchange for $23.1 million in cash. First Federal's total assets were $230 million, consisting primarily of residential loans of $54 million and investment securities and federal funds sold of $165 million. First Federal, which was subsequently merged with First Bank FSB, conducts business from one banking location centrally located in the Hillside community of the greater Chicago metropolitan area. The acquisition was funded by available cash, proceeds from the maturity of short-term investments and borrowings under First Banks' credit agreement. The transaction was accounted for using the purchase method of accounting. The excess of the cost over the fair value of net assets acquired was approximately $450,000 and is being amortized over 10 years. On March 31, 1994, First Banks completed its acquisition of Heritage National Bank, St. Louis, Missouri (Heritage) in exchange for $6.5 million in cash. Heritage's total assets were $63.8 million, consisting primarily of loans of $32.2 million and investment securities and federal funds sold of $27.2 million. Heritage was merged into First Bank (Missouri). The acquisition was funded from available liquidity. The transaction was accounted for using the purchase method of accounting. The excess of the cost over the fair value of the net assets acquired was approximately $2.8 million and is being amortized over 10 years. On June 3, 1994, First Banks completed its acquisition of Farmers Bancshares, Inc., Breese and Valmeyer, Illinois (Farmers) in exchange for $8.1 million in cash. Farmers' total assets were $60.7 million, consisting primarily of loans of $27.1 million and investment securities and federal funds sold of $31.0 million. Farmers was merged into First Bank (Illinois). The acquisition was primarily funded from available liquidity. The transaction was accounted for using the purchase method of accounting. The excess of the cost over the fair value of the net assets acquired was approximately $1.9 million and is being amortized over 10 years. On August 31, 1994, First Banks completed its acquisition of approximately 65.05% of the voting stock of FBA in exchange for $30 million in cash. FBA operates through its wholly owned banking subsidiary, BTX. At the time of the transaction, FBA's total assets were $367 million, consisting primarily of loans of $177 million and investment securities of $167 million. FBA conducts business primarily from six banking locations in Dallas and Houston, Texas. The acquisition was funded by available cash and borrowings under First Banks' credit agreement. The transaction was accounted for using the purchase method of accounting. The outside investors' interest in FBA is reflected as minority interest in the accompanying consolidated financial statements. The excess of the cost over the fair value of the net assets acquired was approximately $4.0 million and is being amortized over 10 years. On November 30, 1994, First Banks acquired 96.3% of St. Charles Federal in exchange for $19.3 million in cash. The purchase, combined with the 3.7% of the stock of St. Charles Federal previously acquired by First Banks, increased First Banks' ownership of St. Charles Federal to 100%. St. Charles Federal had total assets of approximately $90.0 million. The acquisition was funded from available liquidity, borrowings under First Banks' credit agreement, and notes payable to former shareholders of St. Charles Federal. The transaction was accounted for using the purchase method of accounting. The excess of the cost over the fair value of the net assets acquired was approximately $3.9 million and is being amortized over 12 years. On January 4, 1995, First Banks completed its acquisition of River Valley Holdings, Inc. and its wholly owned subsidiary, River Valley Savings Bank, F.S.B. (River Valley), for a purchase price of $37.4 million. River Valley's total assets were $412 million, consisting primarily of residential loans of $225 million and investment securities of $125 million. River Valley was merged with First Bank FSB. In addition, River Valley operated a mortgage banking division which serviced approximately $669 million of residential loans for others which was merged into and centralized with First Banks' mortgage banking division effective upon completion of the acquisition. The acquisition F-13 106 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) was funded by cash of $18.8 million and a promissory note payable to a former stockholder of River Valley of $18.6 million. The transaction was accounted for using the purchase method of accounting. The excess of the cost over the fair value of the net assets acquired was approximately $11.5 million and is being amortized over 15 years. On March 15, 1995, First Banks completed its acquisition of CCB and its wholly owned subsidiary, Commercial Center Bank, in exchange for $30.4 million in cash. CCB was headquartered in Santa Ana, California and operated three banking locations in Santa Ana, San Jose and Walnut Creek. The acquisition of CCB represents First Banks' initial entry into the southern California market. CCB's total assets were $193.4 million, consisting primarily of loans and investment securities of $114.5 million and $31.1 million, respectively. The acquisition was funded from available cash and borrowings under First Banks' credit agreement. The transaction was accounted for using the purchase method of accounting. The excess of the fair value of the net assets acquired over the cost was approximately $3.3 million and is being accreted to income over 10 years. On April 28, 1995, First Banks completed its acquisition of HNB Financial Group, Huntington Beach, California (HNB) and its wholly owned subsidiary, Huntington National Bank, in exchange for $10.9 million in cash. HNB's total assets were $88.0 million, consisting primarily of loans and investment securities of $62.8 million and $10.5 million, respectively. The acquisition was funded from available cash and borrowings under First Banks' credit agreement. The transaction was accounted for using the purchase method of accounting. The excess of the cost over the fair value of the net assets acquired was approximately $1.1 million and is being amortized over 10 years. HNB and Huntington National Bank were merged into CCB and FB&T, formerly Commercial Center Bank, respectively, on August 18, 1995. On May 31, 1995, First Banks completed its acquisition of Irvine City Financial, Irvine, California (Irvine) and its wholly owned subsidiary, Irvine City Bank, f.s.b., in exchange for $4.2 million in cash. Irvine's total assets were $83.3 million, consisting primarily of loans of $68.7 million and investment securities and federal funds sold of $10.6 million. The acquisition was funded from available cash and borrowings under First Banks' credit agreement. The transaction was accounted for using the purchase method of accounting. The purchase price approximated the fair value of the net assets acquired. Irvine and Irvine City Bank, f.s.b. were merged into CCB and FB&T, respectively, on August 23, 1995. On July 21, 1995, First Banks completed its investment in QCB Bancorp (QCB), a California corporation and sole shareholder of Queen City Bank, N.A. (Queen City), Long Beach, California. As provided by the agreement, First Banks invested $5.5 million in a convertible debenture issued by QCB. In addition, First Banks has purchased all other outstanding convertible debentures and accrued but unpaid interest of QCB totaling $534,000. Under the terms of the debentures, the principal outstanding balance and the related accrued but unpaid interest will be converted into shares of common stock of QCB (QCB Common) on December 31, 1996. Prior to December 31, 1996, the debentures are convertible into QCB Common at the option of First Banks. The conversion price is determined by the relationship of the book value per share at the end of the preceding quarter to that as of September 30, 1994 ($2.03) multiplied by $1.10 per share. On November 30, 1995, First Banks converted $2.2 million of the $5.5 million convertible debenture and related accrued interest of $201,000 into 48 million shares of QCB Common, resulting in an ownership interest in QCB of 96.63%. QCB's total assets were $56.2 million, consisting primarily of loans of $35.1 million and cash and cash equivalents and investment securities of $20.5 million. The investment was funded from available cash and borrowings under First Banks' credit agreement. The transaction was accounted for using the purchase method of accounting. The excess of the cost over the fair value of the net assets acquired was approximately $465,000 and is being amortized over 10 years. It is expected that QCB will be merged into CCB in March 1996. Queen City is expected to be merged into FB&T during April 1996. On August 7, 1995, First Banks executed an Amended and Restated Stock Purchase Agreement (FCB Agreement) with FCB. Under the FCB Agreement and subsequent agreements entered into with FCB, FCB and its subsidiary, First Commercial, were recapitalized through a series of transactions as follows: F-14 107 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) a. On August 22, 1995, First Banks acquired $1.5 million of preferred stock of First Commercial from Mr. James F. Dierberg, for the $1.5 million paid for the stock by Mr. Dierberg on June 30, 1995. b. On August 23, 1995, First Banks purchased 116,666,666 shares of First Commercial common stock for an additional $3.5 million. c. On October 31, 1995, First Banks purchased a convertible debenture of FCB for $1.5 million, the proceeds of which were used to increase the capital of First Commercial. d. Following the completion of a Special Stockholders' Meeting of FCB on December 27, 1995, the shares of First Commercial preferred stock and First Commercial common stock held by First Banks were exchanged for 50,000,000 shares of FCB common stock. In addition, First Banks purchased a convertible debenture of FCB for $5.0 million, the proceeds of which, except for $250,000 retained by FCB, were contributed to the capital of First Commercial. e. On December 28, 1995, First Banks purchased an additional 15,000,000 shares of FCB common stock for $1.5 million, the proceeds of which were used to increase the capital of First Commercial. The FCB transactions were funded from available cash and an advance of $6.0 million under First Banks' existing credit agreement with a group of unaffiliated commercial banks. The transaction was accounted for using the purchase method of accounting. The excess of the cost over the fair value of the net assets acquired was approximately $2.4 million and is being amortized over 10 years. As a result of these transactions, First Banks owns 93.29% of the outstanding common stock of FCB and $6.5 million of convertible debentures maturing in October and December 2000. The debentures bear interest at 12% annually. Interest thereon is payable in cash only if permitted by the appropriate regulatory authorities of FCB and First Commercial and their Boards of Directors. The debentures and any accrued but unpaid interest thereon must be converted at maturity, but may be converted at any time prior thereto at the option of First Banks, at $.10 per share. The FCB Agreement also provides for FCB to offer to its shareholders, other than First Banks, rights to acquire an aggregate of $5 million of newly-issued common stock at $.10 per share. A maximum of $1.0 million of this offering not otherwise subscribed to may be offered to individuals who are not stockholders of FCB. In addition, $969,000 of common stock is to be offered in exchange for certain outstanding dividend obligations and accrued interest thereon of FCB. If this offering is fully subscribed, First Banks' ownership in FCB could be reduced to 50.25%, prior to the conversion of the debentures, or 66.95%, if the debentures and accrued interest thereon had been converted as of December 31, 1995. For each of the three years ended December 31, 1994, FCB and First Commercial incurred substantial operating losses related primarily to asset quality problems. These problems continued throughout 1995, resulting in the elimination of FCB's stockholders' equity, and the substantial reduction of First Commercial's stockholders' equity, by June 30, 1995. First Commercial's reduced capital level caused it to be classified as ``critically undercapitalized'' for regulatory purposes, subjecting it to the Prompt Corrective Action provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. These provisions required it to seek additional capital or face the possible imposition of a conservatorship or receivership within 90 days. As a result of the FCB Agreement, Tier 1 capital ratios of FCB and First Commercial as of December 31, 1995 have increased to 2.14% and 6.58%, respectively. Although FCB continues to be considered ``significantly undercapitalized'' for regulatory purposes, First Commercial is considered ``adequately capitalized.'' First Banks has committed that it will purchase in the offering described above, as a standby-purchaser, after the expiration of the offering and dividend exchange offer, if necessary, such number of shares as may be required to raise First Commercial's Tier 1 capital ratio to 7.00% as required by the Capital Impairment Order of the California State Banking Division. On September 1, 1995, First Banks completed its acquisition of La Cumbre in exchange for $5.5 million in cash. La Cumbre's total assets were $144 million, consisting primarily of loans of $131 million and cash and cash equivalents and investment securities of $7.6 million. The transaction was accounted for using the purchase method of accounting. F-15 108 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The excess of the cost over the fair value of the net assets acquired was approximately $697,000 and is being amortized over 10 years. The acquisition was funded from available cash. La Cumbre operated as a wholly owned thrift subsidiary of CCB until it was merged into First Bank & Trust on January 16, 1996. The following unaudited summary information presents the pro forma results of operations of First Banks combined with the acquisitions completed during 1995 as if First Banks had completed the transactions on January 1, 1994. The pro forma results of operations also include FBA, which was acquired by First Banks on August 31, 1994, for the periods prior to the acquisition date.
DECEMBER 31, ------------------ 1995 1994 ---- ---- (DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA) Net interest income....................................................... $127,602 136,221 Provision for possible loan losses........................................ 24,770 16,141 Net income (loss)......................................................... 4,018 (4,599) Preferred stock dividends................................................. 5,736 5,736 Net loss available to common stockholders................................. (1,718) (10,335) ======== ======= Weighted average shares of common stock outstanding....................... 23,661 23,661 ======== ======= Net loss per common share: Primary............................................................... $ (72.60) (436.76) Fully diluted......................................................... (36.91) (368.67) ======== =======
The unaudited pro forma condensed statements of income reflect the application of the purchase method of accounting and certain other assumptions. The purchase accounting adjustments reflect the assets acquired and liabilities assumed at fair value. Purchase accounting adjustments have been applied to investment securities, loans, bank premises and equipment, deferred tax assets and liabilities and excess cost required to reflect the assets acquired and liabilities assumed at fair value. The resulting premiums and discounts are amortized or accreted to income consistent with the accounting policies of First Banks. The application of the purchase method of accounting will not have a material impact on the future operating results of First Banks. (3) INVESTMENTS IN DEBT AND EQUITY SECURITIES Effective December 31, 1993, First Banks adopted SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS 115), for which the cumulative effect was recorded on the consolidated balance sheet on that date. F-16 109 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SECURITIES AVAILABLE FOR SALE The amortized cost, contractual maturity, unrealized gains and losses and fair value of investment securities available for sale at December 31, 1995 and 1994 were as follows:
MATURITY GROSS --------------- TOTAL UNREALIZED AFTER AMOR- --------------- WEIGHTED 1 YEAR 1-5 5-10 10 TIZED FAIR AVERAGE OR LESS YEARS YEARS YEARS COST GAINS LOSSES VALUE YIELD ------- ----- ----- ----- ----- ----- ------ ----- -------- (DOLLARS EXPRESSED IN THOUSANDS) December 31, 1995: Carrying value: U.S. Treasury.............. $ 20,080 23,823 -- -- 43,903 134 (25) 44,012 5.54% U.S. government agencies and corporations: Mortgage-backed........ 2,863 56,178 29,268 148,897 237,206 1,436 (3,146) 235,496 6.32 Other.................. 92,343 67,926 -- -- 160,269 766 (738) 160,297 5.82 Other...................... 2,383 804 100 9 3,296 7 -- 3,303 5.11 Equity investments in other financial institutions... 5,256 -- -- -- 5,256 5,254 -- 10,510 3.97 Federal Home Loan Bank and Federal Reserve Bank stock.................... 18,173 -- -- -- 18,173 -- -- 18,173 7.02 Net deferred (gain) loss on interest rate futures contracts................ 2,059 2,517 -- 4,576 -- (4,576) -- -- -------- ------- ------ ------- ------- ------ ------ ------- ---- Total............. $143,157 151,248 29,368 148,906 472,679 7,597 (8,485) 471,791 6.07 ======== ======= ====== ======= ======= ====== ====== ======= ==== Market value: Debt securities............ $117,693 147,690 29,315 148,410 Equity securities.......... 28,683 -- -- -- -------- ------- ------ ------- Total............. $146,376 147,690 29,315 148,410 ======== ======= ====== ======= Weighted average yield............. 5.88% 5.49% 6.45% 6.44% ==== ==== ==== ==== December 31, 1994: Carrying value: U.S. Treasury.............. $ 36,367 9,854 507 -- 46,728 -- (692) 46,036 4.66% U.S. government agencies and corporations: Mortgage-backed........ -- 5,893 28,244 142,207 176,344 155 (3,131) 173,368 6.51 Other.................. 27,114 74,556 496 383 102,549 4 (4,264) 98,289 5.28 Equity investments in other financial institutions... 8,720 -- -- -- 8,720 3,662 -- 12,382 1.68 Federal Home Loan Bank and Federal Reserve Bank stock.................... 25,883 -- -- -- 25,883 -- -- 25,883 7.60 Net deferred (gain) loss on interest rate futures contracts................ (224) (6,309) -- -- (6,533) 6,533 -- -- -- -------- ------- ------ ------- ------- ------ ------ ------- --- Total............. $ 97,860 83,994 29,247 142,590 353,691 10,354 (8,087) 355,958 5.84 ======== ======= ====== ======= ======= ====== ====== ======= ==== Market value: Debt securities............ $ 62,442 85,592 29,035 140,624 Equity securities.......... 38,265 -- -- -- -------- ------- ------ ------- Total............. $100,707 85,592 29,035 140,624 ======== ======= ====== ======= Weighted average yield............. 5.38% 5.22% 7.55% 6.30% ==== ==== ==== ====
F-17 110 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SECURITIES HELD TO MATURITY The amortized cost, contractual maturity, unrealized gains and losses and fair value of investment securities held to maturity at December 31, 1995 and 1994 were as follows:
MATURITY GROSS --------------- TOTAL UNREALIZED AFTER AMOR- --------------- WEIGHTED 1 YEAR 1-5 5-10 10 TIZED FAIR AVERAGE OR LESS YEARS YEARS YEARS COST GAINS LOSSES VALUE YIELD ------- ----- ----- ----- ----- ----- ------ ----- -------- (DOLLARS EXPRESSED IN THOUSANDS) December 31, 1995: Carrying value: U.S. Treasury.............. $ 7,018 -- -- -- 7,018 63 -- 7,081 6.51% U.S. government agencies and corporations: Mortgage-backed........ -- -- -- -- -- -- -- -- -- Other.................. 2,004 1,936 -- -- 3,940 -- (16) 3,924 4.83 State and political subdivisions............. 2,787 3,545 13,781 5,461 25,574 509 (67) 26,016 5.55 ------- ------ ------ ------- ------- --- ------- ------- ---- Total............. $11,809 5,481 13,781 5,461 36,532 572 (83) 37,021 5.93 ======= ====== ====== ======= ======= === ======= ======= ==== Market value: Debt securities............ $11,906 5,572 14,035 5,508 Equity securities.......... -- -- -- -- ------- ------ ------ ------- Total............. $11,906 5,572 14,035 5,508 ======= ====== ====== ======= Weighted average yield............. 6.01% 5.78% 5.18% 5.25% ==== ==== ==== ==== December 31, 1994: Carrying value: U.S. Treasury.............. $ -- 10,251 -- -- 10,251 -- (493) 9,758 5.49% U.S. government agencies and corporations: Mortgage-backed........ 3,283 31,753 34,637 108,761 178,434 85 (12,512) 166,007 5.99 Other.................. -- 9,767 -- -- 9,767 -- (464) 9,303 4.95 State and political subdivisions............. 4,052 4,669 14,006 4,510 27,237 143 (927) 26,453 5.68 Other...................... 3,063 2,939 91 138 6,231 2 (96) 6,137 6.14 ------- ------ ------ ------- ------- --- ------- ------- ---- Total............. $10,398 59,379 48,734 113,409 231,920 230 (14,492) 217,658 5.89 ======= ====== ====== ======= ======= === ======= ======= ==== Market value: Debt securities............ $10,461 56,496 45,270 105,431 Equity securities.......... -- -- -- -- ------- ------ ------ ------- Total............. $10,461 56,496 45,270 105,431 ======= ====== ====== ======= Weighted average yield............. 6.95% 5.92% 5.59% 5.92% ==== ==== ==== ====
The expected maturities of investment securities may differ from contractual maturities since borrowers have the right to call or prepay the obligations with or without prepayment penalties. The stated maturity of the net deferred losses and gains on interest rate futures contracts represents the period the net deferred losses and gains are expected to be amortized and accreted, respectively, into interest income. Proceeds from the sales of debt securities classified as available for sale during 1995 were $388.0 million. Gross gains of $9.1 million and gross losses of $900,000 were realized on those sales. The gross gains, net of gross losses, were offset by the recognition of $10.1 million of hedging losses. Proceeds from the sales of equity securities classified as available for sale during 1995 were $20.5 million. Gross gains of $1.3 million and gross losses of $200,000 were realized on those sales. Gains and losses were computed using the specific identification basis for each security sold. Proceeds from the sales of debt securities classified as available for sale totaling $1.3 million were previously classified as held to maturity. Gross gains realized from the sales of these securities were $36,000. These securities were transferred from held to maturity to available for sale in accordance with the provisions of a special report issued by the FASB, A Guide to Implementation of Statement 115 on Accounting for Certain Investments in Debt and Equity Securities (Special Report). F-18 111 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Special Report provided an enterprise the opportunity to reclassify any of its investment securities through December 31, 1995 without bringing into question the intent of an enterprise to hold other debt securities to maturity. Under the Special Report, First Banks reclassified $174.1 million of securities from held to maturity to available for sale, of which $1.3 million were sold. Accordingly, at December 31, 1995, debt securities of $172.8 million previously classified as held to maturity are currently classified as available for sale. The market valuation account, for the securities reclassified to available for sale remaining in the portfolio at December 31, 1995, was adjusted by $2.7 million, representing a decrease in the recorded balance of such securities at December 31, 1995 to their fair value on that date; the deferred tax asset of $950,000 was recorded to reflect the tax effect of the market valuation account adjustment; and the net decrease resulting from the reclassification at December 31, 1995 of $1.8 million was reflected within a separate component of stockholders' equity. Proceeds from the sales of debt securities classified as available for sale during 1994 were $261.1 million. Gross gains of $1.7 million and gross losses of $3.5 million were realized on those sales. Proceeds from the sales of equity securities classified as available for sale during 1994 were $8.4 million. Gross gains of $2.1 million and gross losses of $96,000 were realized on those sales. Proceeds from the sales of debt securities classified as held to maturity during 1994 were $10.3 million. Gross losses of $488,000 were realized on those sales. There were no gains realized on those sales. These sales are allowable under SFAS 115 as they related to investment securities acquired in connection with the acquisition of First Federal and the sale was necessary in order to maintain First Banks' existing interest rate risk position. Proceeds from the sales of debt securities during 1993 were $16.1 million. Gross gains of $246,000 and gross losses of $91,000 were realized on those sales. There were no sales of equity securities during 1993. Various subsidiaries of First Banks maintain investments in the Federal Home Loan Bank (FHLB) or the Federal Reserve Bank (FRB). The investment in FHLB stock is maintained at a minimum amount equal to the greater of 1% of the aggregate outstanding balance of the applicable Subsidiary Banks' loans secured by residential real estate, or 5% of advances from the FHLB to each Subsidiary Bank. First Bank FSB, First Bank (Missouri), BTX, La Cumbre and St. Charles Federal are members of the FHLB system. The investment in the FRB stock is maintained at a minimum of 6% of the applicable Subsidiary Banks' capital stock and capital surplus. First Bank (Missouri), BTX and Queen City are members of the FRB system. Investment securities with a carrying value of approximately $230.2 million and $263.4 million at December 31, 1995 and 1994, respectively, were pledged in connection with deposits of public and trust funds and for other purposes as required by law. (4) LOANS Changes in the allowance for possible loan losses for the years ended December 31 were as follows:
1995 1994 1993 ---- ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Balance, January 1........................................... $ 28,410 23,053 20,897 Acquired allowances for possible loan losses................. 24,655 5,026 2,079 -------- ------ ------ 53,065 28,079 22,976 -------- ------ ------ Loans charged-off............................................ (15,620) (6,696) (9,531) Recoveries of loans previously charged-off................... 4,859 5,169 5,152 -------- ------ ------ Net loans charged-off........................................ (10,761) (1,527) (4,379) -------- ------ ------ Provision charged to operations.............................. 10,361 1,858 4,456 -------- ------ ------ Balance, December 31......................................... $ 52,665 28,410 23,053 ======== ====== ======
F-19 112 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At December 31, 1995 and 1994, First Banks had $43.4 million and $15.9 million, respectively, of loans on a nonaccrual status. Interest on nonaccrual loans, which would have been recorded under the original terms of the loans, was $4.2 million and $1.7 million for the years ended December 31, 1995, and 1994, respectively. Of these amounts, $1.9 million and $982,000 was actually recorded as interest income on such loans in 1995 and 1994, respectively. At December 31, 1995, First Banks had impaired loans in the amount of $31.5 million, which is represented by certain loans on a nonaccrual status and consumer installment loans 60 days or more past due. The impaired loans had no specific reserves at December 31, 1995. The average recorded investment in impaired loans since the adoption of SFAS 114 and SFAS 118 on January 1, 1995 was $34.3 million. The amount of interest income recognized using a cash basis method of accounting during the time these loans were impaired was $1.2 million in 1995. First Banks' primary market areas are the states of Missouri, Illinois and California. At December 31, 1995, approximately 92.9% of the total loan portfolio, and 95.7% of the commercial, financial and agricultural loan portfolio, were to borrowers within these regions. The diversity of the region's economic base tends to provide a stable lending environment. Real estate lending constituted the only other significant concentration of credit risk. Real estate loans comprised approximately 73% of the consolidated loan portfolio at December 31, 1995. Of the total real estate loans, approximately 58% were consumer-related in the form of residential real estate mortgages and home equity lines of credit. First Banks is, in general, a secured lender. At December 31, 1995, approximately 97% of the loan portfolio was secured. Collateral is required in accordance with the normal credit evaluation process based upon the creditworthiness of the customer and the credit risk associated with the particular transaction. (5) MORTGAGE BANKING ACTIVITIES At December 31, 1995 and 1994, First Banks serviced loans for others amounting to $856.6 million and $698.6 million, respectively. Servicing loans generally consists of collecting mortgage loan payments, maintaining escrow accounts, disbursing payments to investors and foreclosure processing. In connection with these loans serviced for others, First Banks held borrowers' escrow balances of $4.5 million and $4.8 million at December 31, 1995 and 1994, respectively. Changes in the purchased mortgage servicing rights for the years ended December 31 were as follows:
1995 1994 ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Balance, January 1.......................................... $ 5,755 4,095 Acquired purchased mortgage servicing rights................ 10,601 -- Purchases of mortgage servicing rights...................... 685 2,371 Sales of mortgage servicing rights.......................... (2,771) -- Amortization................................................ (2,148) (711) ------- ----- Balance, December 31........................................ $12,122 5,755 ======= =====
F-20 113 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (6) BANK PREMISES AND EQUIPMENT Bank premises and equipment were comprised of the following at December 31:
1995 1994 ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Land........................................................ $12,393 9,621 Buildings and improvements.................................. 40,405 38,281 Furniture, fixtures and equipment........................... 37,211 24,348 Leasehold improvements...................................... 6,582 1,466 Construction in progress.................................... 985 545 ------- ------ 97,576 74,261 Less accumulated depreciation and amortization.............. 47,298 30,600 ------- ------ Bank premises and equipment, net.................... $50,278 43,661 ======= ======
Total rent expense was $3.2 million, $1.1 million and $1.0 million for the years ended December 31, 1995, 1994 and 1993, respectively. (7) FEDERAL HOME LOAN BANK ADVANCES Advances from the FHLB of Des Moines, Dallas and San Francisco at December 31 are summarized as follows:
1995 1994 ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Advances under a $50,000,000 revolving variable rate line of credit maturing July 19, 1995............................. $ -- 41,020 Adjustable-rate advances, maturing from October 1995 through December 1996............................................. 44,220 85,727 Fixed-rate advances, maturing from June 1995 through May 1998...................................................... 5,663 19,612 ------- ------- Total............................................... $49,883 146,359 ======= =======
All stock in the FHLB and first mortgage loans with principal balances aggregating 150% of outstanding and available advances are pledged as collateral to secure outstanding advances. In addition, FBA has collateralized $5.7 million and $19.4 million of advances with U.S. government agency and corporation securities which had an aggregate market value of $8.1 million and $22.6 million at December 31, 1995 and 1994, respectively. The average rates paid on advances outstanding during the years ended December 31, 1995, 1994 and 1993 were 6.3%, 5.6% and 3.6%, respectively. (8) NOTES PAYABLE Notes payable include a Revolving Line and Term Credit Agreement (Credit Agreement), promissory notes payable to former shareholders of acquired entities and convertible subordinated debentures. First Banks' Credit Agreement, dated July 14, 1995, replaced the revolving credit agreement outstanding at November 30, 1994. The Credit Agreement provides a $50 million revolving loan commitment and a $40 million term loan. Interest under the revolving loan commitment and the term loan is payable at the lead bank's corporate base rate or, at the option of First Banks, is payable at the London Interbank Offered Rate plus 1.50% and 1.25%, respectively, and is paid monthly. Loans may be made under the revolving loan commitment until July 12, 1996 at which date the principal and accrued interest is due and payable. The term loan requires quarterly principal payments of $1.0 million and matures on July 31, 2000, at which date the remaining principal and accrued interest is due and F-21 114 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) payable. Loans under the Credit Agreement are secured by all of the stock of the Subsidiary Banks which is owned by First Banks. The Credit Agreement requires maintenance of certain minimum capital ratios for each financial institution subsidiary. In addition, it prohibits the payment of dividends on First Banks' common stock. At December 31, 1995, First Banks and the Subsidiary Banks were in compliance with all restrictions and requirements in the Credit Agreement. The promissory notes of $18.6 million and $2.1 million are payable to former shareholders of River Valley and St. Charles Federal, respectively. Interest under the promissory notes are payable under similar terms as the Credit Agreement. The promissory note payable to a former shareholder of River Valley matured on January 2, 1996 and was repaid through an advance under the Credit Agreement. The promissory notes payable to the former shareholders of St. Charles Federal are payable in equal installments of $1.1 million on January 2, 1996 and 1997. The promissory notes are secured by letters of credit issued under the Credit Agreement. At December 31, 1995 and 1994, FBA had $1.1 million of 9% convertible subordinated debentures due May 15, 1996. These debentures are guaranteed by FBA and are convertible into common stock of FBA. Management does not expect these debentures to be converted into common stock of FBA because the exercise price is substantially in excess of current market prices. The average balance and maximum month-end balance of the notes payable outstanding for the years ended December 31 were as follows:
1995 1994 ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Average balance............................................. $80,647 15,518 Maximum month-end balance................................... 89,811 46,760 ======= ======
The average rates paid on notes payable outstanding during the years ended December 31, 1995, 1994 and 1993 were 7.22%, 7.17% and 6.00%, respectively. (9) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE Certain Subsidiary Banks sell securities under agreements to repurchase. The securities underlying the agreements are book entry securities and were delivered, by appropriate entry, to an unaffiliated bank. These borrowings were collateralized by investment securities in the available-for-sale portfolio, consisting of U.S. Treasury securities, U.S. government agencies and corporations and interest-bearing deposits with the FHLB of Des Moines and Dallas which had an aggregate market value of $29.3 million and $117.1 million at December 31, 1995 and 1994, respectively. The average balance and maximum month-end balance of securities sold under agreements to repurchase for the years ended December 31 were as follows:
1995 1994 ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Average balance outstanding................................. $42,530 28,237 Maximum month-end balance outstanding....................... 88,337 72,795 ======= ======
(10) INCOME TAXES SFAS 109 requires a change from the deferred method of accounting for income taxes under APB Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax F-22 115 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. First Banks, Inc. adopted SFAS 109 effective January 1, 1993. The cumulative effect of this change in accounting for income taxes was $766,000 as of January 1, 1993. Prior years' consolidated financial statements have not been restated to apply the provisions of SFAS 109. Income tax expense (benefit) attributable to income from continuing operations for the years ended December 31 consists of:
YEARS ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 ---- ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Current income taxes: Federal................................................... $ 2,638 11,978 10,037 State..................................................... 870 906 24 ------- ------ ------ 3,508 12,884 10,061 ------- ------ ------ Deferred income tax expense (benefit): Federal................................................... 7,624 (872) 1,531 State..................................................... (94) -- -- ------- ------ ------ 7,530 (872) 1,531 ------- ------ ------ Total................................................. $11,038 12,012 11,592 ======= ====== ======
The federal income tax rates and amounts are reconciled with the effective income tax rates and amounts as follows:
YEARS ENDED DECEMBER 31, ----------------------------------------------------------- 1995 1994 1993 ----------------- ----------------- ----------------- % OF % OF % OF PRETAX PRETAX PRETAX AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME ------ ------ ------ ------ ------ ------ (DOLLARS EXPRESSED IN THOUSANDS) Income before provision for income taxes, minority interest in loss of subsidiaries and cumulative effect of change in accounting principle......................................................... $34,156 $35,807 $34,020 ======= ======= ======= Taxes on income calculated at statutory rates....................... 11,955 35.0% 12,532 35.0% 11,899 35.0% Effects of differences in tax reporting: Tax-exempt interest income...................................... (817) (2.4) (795) (2.2) (628) (1.8) Tax preference adjustment of interest income.................... 99 .3 78 .2 56 .1 Amortization of excess cost..................................... 645 1.8 152 .4 47 .1 State income taxes.............................................. 504 1.5 589 1.6 24 .1 Change in deferred valuation allowance.......................... (960) (2.8) -- -- -- -- Other, net...................................................... (388) (1.1) (544) (1.5) 196 .6 ------- ----- ------- ----- ------- ----- Provision for income taxes.................................. $11,038 32.3% $12,012 33.5% $11,594 34.1% ======= ===== ======= ===== ======= =====
F-23 116 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities for periods after the adoption of SFAS 109 are below. The net deferred tax assets reflect amounts attributable to entities acquired in purchase transactions.
YEARS ENDED DECEMBER 31, ------------------ 1995 1994 ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Deferred tax assets: Allowance for possible loan losses............................................................. $21,642 9,571 Other real estate.............................................................................. 2,736 1,984 Alternative minimum tax credits................................................................ 1,754 60 Book losses on investment securities currently not allowable for tax purposes.................. -- 920 Net fair value adjustment for securities available for sale.................................... 329 -- Net operating loss carryforwards............................................................... 36,145 9,270 Other.......................................................................................... 3,081 2,058 ------- ------ Total gross deferred tax assets............................................................ 65,687 23,863 Less valuation allowance....................................................................... (24,111) (2,731) ------- ------ Gross deferred tax assets, net of valuation allowance...................................... 41,576 21,132 ------- ------ Deferred tax liabilities: Depreciation on bank premises and equipment.................................................... 2,467 2,737 FHLB stock dividends........................................................................... 997 835 Mortgage loan hedging loss..................................................................... -- 236 Purchase accounting adjustments................................................................ -- 869 State taxes.................................................................................... 1,660 -- Net fair value adjustment for securities available for sale.................................... -- 483 Book losses on investment securities currently not allowable for tax purposes.................. 266 -- Other.......................................................................................... 1,393 877 ------- ------ Total gross deferred tax liabilities....................................................... 6,517 6,037 ------- ------ Net deferred tax assets.................................................................... $35,059 15,095 ======= ======
At December 31, 1995 and 1994, the accumulation of prior years' earnings representing tax bad debt deductions of First Bank FSB, St. Charles Federal and La Cumbre were approximately $31.4 million and $20.1 million, respectively. If these tax bad debt reserves were charged for losses other than bad debt losses, First Bank FSB, St. Charles Federal and La Cumbre would be required to recognize taxable income in the amount of the charge. It is not contemplated that such tax-restricted retained earnings will be used in a manner which will create federal income tax liabilities. A deferred tax liability has been recorded for approximately $4.0 million and $3.5 million of the accumulation at December 31, 1995 and 1994, respectively which represents that portion of the tax bad debt deductions which may require future tax recapture. At December 31, 1995, First Banks has separate limitation year (SRLY) net operating loss (NOL) carryforwards of $70.6 million. These SRLY carryforwards were incurred by institutions acquired between 1992 and 1995 and their utilization is subject to annual limitations. In addition, these institutions have alternative minimum tax credits of $1.8 million which are also subject to annual limitations. F-24 117 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At December 31, 1995, for federal income taxes purposes, First Banks had NOL carryforwards of approximately $70.6 million, exclusive of the NOL carryforwards available to FBA as further described below. The NOL carryforwards for First Banks expire as follows:
(DOLLARS EXPRESSED IN THOUSANDS) Year ending December 31: 1998........................................................................... $ 156 2000........................................................................... 4,903 2001........................................................................... 363 2002........................................................................... 5,582 2003-2009...................................................................... 59,563 ------- $70,567 =======
With the completion of the 1994 acquisition of 65.05% of FBA, the NOL carryforwards generated prior to the transaction were subject to an annual limitation under Internal Revenue Code (IRC) Section 382 for all subsequent tax years. The following schedule reflects the NOL carryforwards that will be available, after consideration of IRC Section 382 limitations, to offset future taxable income. These NOLs are only available on the consolidated federal income tax return of FBA and do not affect the taxable income of First Banks. At December 31, 1995, for federal income tax purposes, FBA had NOL carryforwards of approximately $32.7 million. The NOL carryforwards expire as follows:
(DOLLARS EXPRESSED IN THOUSANDS) Year ending December 31: 1996........................................................................... $ 858 1998........................................................................... 4,140 1999........................................................................... 2,241 2000........................................................................... 103 2001-2010...................................................................... 25,363 ======= $32,705 =======
The remaining net deferred tax assets of FBA were reevaluated to determine whether it is more likely than not that the deferred tax assets will be recognized in the future. Taking all positive and negative criteria into consideration, it was determined that the valuation allowance established for FBA should remain at $2.7 million. Subsequently recognized tax benefits relating to a decrease in the valuation allowance from the balance at December 31, 1994 will be credited directly to intangibles associated with the purchase of FBA. The realization of First Banks' net deferred tax assets is based on the availability of carrybacks to prior taxable periods, the anticipation of future taxable income in certain periods and the utilization of tax planning strategies. Management has determined that it is more likely than not that the net deferred tax assets relating to entities owned prior to 1995 can be supported by carrybacks to federal taxable income in the three-year federal carryback period and by expected future taxable income which will exceed amounts necessary to fully realize remaining deferred tax assets resulting from NOL carryforwards and the scheduling of temporary differences. However, it has been determined that the net deferred tax assets of certain entities acquired in 1995 should not be fully valued until they can provide an earnings history sufficient to support their respective net deferred tax asset. A valuation reserve was determined using the same criteria as used for other First Bank entities. This valuation reserve is shown as an addition to the valuation allowance in the following schedule. F-25 118 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Changes to the deferred tax assets valuation allowance are as follows:
YEARS ENDED DECEMBER 31, ------------------------ 1995 1994 ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Balance, beginning of year.................................... $ 2,731 -- Current year deferred provision, change in deferred tax valuation allowance......................................... (960) -- Purchase acquisitions......................................... 22,340 2,731 ------- ----- Balance, end of year.......................................... $24,111 2,731 ======= =====
(11) INTEREST RATE RISK MANAGEMENT AND DERIVATIVE FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK First Banks manages its interest rate risk by: (1) maintaining an Asset Liability Committee (ALCO) responsible to First Banks' Board of Directors to review the overall interest rate risk management activity and approve actions taken to reduce risk; (2) maintaining an effective monitoring mechanism to determine First Banks' exposure to changes in interest rates; (3) coordinating the lending, investing and deposit-generating functions to control the assumption of interest rate risk; and (4) employing various off-balance-sheet financial instruments to offset inherent interest rate risk when it becomes excessive. The objective of these procedures is to limit the adverse impact which changes in interest rates may have on net interest income. The ALCO has overall responsibility for the effective management of interest rate risk and the approval of policy guidelines. The ALCO includes the Chairman and Chief Executive Officer, the senior executives of investments, credit administration, retail banking and finance, and certain other officers. The ALCO is supported by the Asset Liability Management Group which monitors interest rate risk, prepares analyses for review by the ALCO and implements actions which are either specifically directed by the ALCO or established by policy guidelines. To measure the effect of interest rate changes, First Banks recalculates its net income over a one-year horizon on a pro forma basis assuming instantaneous, permanent parallel and nonparallel shifts in the yield curve, in varying amounts both upward and downward. During 1994, First Banks expanded its use of off-balance-sheet derivative financial instruments to assist in the management of interest rate sensitivity. These off-balance-sheet derivative financial instruments are utilized to modify the repricing, maturity and option characteristics of on-balance-sheet assets and liabilities. As more fully described in Note 1 to the accompanying consolidated financial statements, First Banks holds a combination of off- balance-sheet derivative financial instruments, generally limited to interest rate swap agreements, interest rate cap and floor agreements, interest rate futures contracts, options on interest rate futures contracts and forward contracts to sell mortgage-backed securities. The use of such derivative financial instruments is strictly limited to reducing the interest rate exposure of First Banks. F-26 119 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Derivative financial instruments held by First Banks for purposes of managing interest rate risk are summarized as follows:
DECEMBER 31, --------------------------------------------------- 1995 1994 ---------------------- ----------------------- NOTIONAL CREDIT NOTIONAL CREDIT AMOUNT EXPOSURE AMOUNT EXPOSURE -------- -------- -------- -------- (DOLLARS EXPRESSED IN THOUSANDS) Interest rate futures contracts............ $ -- -- 3,587,000 -- Interest rate swap agreements.............. 145,000 -- 265,000 2,441 Interest rate floor agreements............. 105,000 608 -- -- Interest rate cap agreements............... 30,000 292 10,000 577 Forward commitments to sell mortgage-backed securities............................... 42,000 -- 24,000 --
The notional amounts of derivative financial instruments do not represent amounts exchanged by the parties and, therefore, are not a measure of First Banks' credit exposure through its use of derivative financial instruments. The amounts exchanged are determined by reference to the notional amounts and the other terms of the derivatives. First Banks sold interest rate futures contracts and purchased options on interest rate futures contracts to hedge the interest rate risk of its available-for-sale securities portfolio. Interest rate futures contracts are commitments to either purchase or sell designated financial instruments at a future date for a specified price and may be settled in cash or through delivery of such financial instruments. Options on interest rate futures contracts confer the right to purchase or sell financial futures contracts at a specified price and are settled in cash. The unamortized balance of net deferred losses on interest rate futures contracts of $4.6 million at December 31, 1995 and net deferred gains on interest rate futures contracts of $6.5 million at December 31, 1994, respectively, were applied to the carrying value of the available-for-sale securities portfolio as part of the mark-to-market valuation. F-27 120 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Interest rate swap agreements are utilized to extend the repricing characteristics of certain interest-bearing liabilities to correspond more closely with the assets of First Banks, with the objective of stabilizing net interest income over time. The net interest expense for these agreements was $6.6 million and $490,000 for the years ended December 31, 1995 and 1994, respectively. The maturity dates, notional amounts, interest rates paid and received, and fair values of interest rate swap agreements outstanding as of the dates indicated are summarized as follows:
NOTIONAL INTEREST RATE FAIR VALUE- AMOUNT PAID RECEIVED GAIN (LOSS) -------- ---- ------------- ----------- (DOLLARS EXPRESSED IN THOUSANDS) December 31, 1995: September 30, 1997..................................................... $ 35,000 7.04% 5.69% $ (932) December 8, 1997....................................................... 15,000 7.90 5.81 (711) September 30, 1999..................................................... 35,000 7.32 5.69 (2,073) September 30, 2001..................................................... 35,000 7.65 5.69 (3,207) January 30, 2005....................................................... 25,000 8.13 5.94 (3,703) -------- -------- $145,000 7.53 5.74 $(10,626) ======== ==== ==== ======== December 31, 1994: December 8, 1996....................................................... $100,000 7.79% 6.38% $ 8 December 8, 1997....................................................... 65,000 7.90 6.38 309 October 21, 1997....................................................... 50,000 7.20 5.56 1,086 October 21, 1999....................................................... 30,000 7.56 5.56 667 October 21, 2001....................................................... 20,000 7.77 5.56 371 -------- -------- $265,000 7.68 6.07 $ 2,441 ======== ==== ==== ========
In connection with the sale of certain residential mortgage loans and repayment of certain borrowings, on May 25, 1995, First Banks terminated a $100 million interest rate swap agreement resulting in a loss of $3.3 million. The loss on the termination of the $100 million interest rate swap agreement has been reflected in the consolidated statements of income for the year ended December 31, 1995. In addition, First Banks experienced a shortening of the expected life of its loan portfolio. This shortening resulted from the significant decline in interest rates during 1995, which caused an increase in the projections of principal prepayments of residential mortgage loans. These increased prepayment projections disproportionately shortened the expected life of the loan portfolio in comparison to the effective maturity created with the interest rate swap agreements. As a result, during July 1995, First Banks shortened the maturity of its interest-bearing liabilities through the termination of $225 million of interest rate swap agreements resulting in a loss of $13.5 million. This loss has been deferred and is being amortized over the remaining lives of the agreements, unless the underlying liabilities are repaid. The unamortized balance of this loss was $11.6 million at December 31, 1995 and was included in other assets. First Banks also has interest rate cap and floor agreements to limit the interest expense associated with certain of its interest-bearing liabilities and the net interest expense of certain interest rate swap agreements, respectively. At December 31, 1995 and 1994, the unamortized costs for these agreements were $685,000 and $577,000, respectively, and were included in other assets. There are no amounts receivable under these agreements. Derivative financial instruments issued by First Banks consist of commitments to originate fixed-rate loans. Commitments to originate fixed-rate loans consist primarily of residential real estate loans. These loan commitments, net of estimated underwriting fallout, and loans held for sale were $42.4 million and $25.0 million at December 31, 1995 and 1994, respectively. These net loan commitments and loans held for sale are hedged with forward contracts to sell mortgage-backed securities. Forward contracts are transactions in which First Banks has agreed to sell mortgage- F-28 121 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) backed securities at a specified future date. Prior to the settlement date, First Banks closes the hedge by entering into an offsetting transaction with the same settlement date. Gains and losses from forward contracts are deferred and included in the cost basis of loans held for sale. At December 31, 1995 and 1994, the net unamortized losses were $737,000 and $925,000, respectively, which were applied to the carrying value of the loans held for sale as part of the lower of cost or market valuation. (12) CREDIT COMMITMENTS First Banks is party to commitments to extend credit and commercial and standby letters of credit in the normal course of business to meet the financing needs of its customers. These commitments involve, in varying degrees, elements of interest rate risk and credit risk in excess of the amount recognized in the consolidated balance sheets. The interest rate risk associated with these credit commitments relates primarily to the commitments to originate residential fixed-rate loans. As more fully discussed in Note 11 to the accompanying consolidated financial statements, the interest rate risk of the commitments to originate fixed-rate loans has been hedged with forward contracts to sell mortgage-backed securities. The credit risk amounts are equal to the contractual amounts, assuming that the amounts are fully advanced and that, in accordance with the requirements of SFAS 105, collateral or other security is of no value. First Banks uses the same credit policies in granting commitments and conditional obligations as it does for on-balance-sheet loans.
DECEMBER 31, ------------------- 1995 1994 ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Commitments to extend credit........................................... $578,750 422,982 Commercial and standby letters of credit............................... 29,468 13,380 -------- ------- $608,218 436,362 ======== =======
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 may require payment of a fee. Since certain of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. First Banks evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by First Banks upon extension of credit is based on management's credit evaluation of the counterparty. Collateral held varies, but is generally residential or income-producing commercial property. Commercial and standby letters of credit are conditional commitments issued by First Banks to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. First Banks holds real property as collateral supporting those commitments for which collateral is deemed necessary. (13) FAIR VALUES OF FINANCIAL INSTRUMENTS Fair values of financial instruments are management's estimate of the values at which the instruments could be exchanged in a transaction between willing parties. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including the mortgage banking operation, deferred tax assets, premises and equipment and goodwill. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of the estimates. F-29 122 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The estimated fair values of First Banks' financial instruments at December 31 were as follows:
1995 1994 ----------------------- ----------------------- CARRYING ESTIMATED CARRYING ESTIMATED VALUE FAIR VALUE VALUE FAIR VALUE -------- ---------- --------- ---------- (DOLLARS EXPRESSED IN THOUSANDS) Financial assets: Cash and cash equivalents............................... $ 199,213 199,213 131,296 131,296 Investment securities: Available for sale.................................. 471,791 471,791 355,958 355,958 Held to maturity.................................... 36,532 37,021 231,920 217,658 Net loans............................................... 2,691,554 2,749,133 2,045,160 2,028,274 Accrued interest receivable............................. 22,027 22,027 16,741 16,741 ========== ========= ========= ========= Financial liabilities: Deposits: Demand: Non-interest-bearing............................ $ 389,658 389,658 290,039 290,039 Interest-bearing................................ 307,584 307,584 268,212 268,212 Savings and money market........................ 690,902 690,902 538,027 538,027 Time deposits....................................... 1,795,547 1,804,347 1,236,866 1,227,015 Borrowings.............................................. 159,676 159,676 289,687 289,687 Accrued interest payable................................ 10,726 10,726 7,606 7,606 ========== ========= ========= ========= Off-balance-sheet: Interest rate futures contracts......................... $ -- -- 6,533 6,533 Interest rate swap, cap and floor agreements............ 14,509 (9,726) 577 3,018 Forward contracts to sell mortgage-backed securities.... (234) (234) (81) (81) Credit commitments -- -- -- -- ========== ========= ========= =========
The following methods and assumptions were used in estimating fair values of financial instruments. FINANCIAL ASSETS: Cash and cash equivalents and accrued interest receivable: The carrying values reported in the consolidated balance sheets approximate fair value. Investment securities: Fair value for securities available for sale are the amounts reported in the consolidated balance sheets, and securities held to maturity are based on quoted market prices where available. If quoted market prices are not available, fair values are based upon quoted market prices of comparable instruments. Net loans: The fair values for most loans held for investment are estimated utilizing discounted cash flow calculations that apply interest rates currently being offered for similar loans to borrowers with similar risk profiles. The fair values of loans held for sale, which are the amounts on the consolidated balance sheets, are based on quoted market prices where available. If quoted market prices are not available, fair values are based upon quoted market prices of comparable instruments. The carrying value for loans is net of the allowance for possible loan losses and unearned discount. F-30 123 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FINANCIAL LIABILITIES: Deposits: The fair value disclosed for deposits generally payable on demand (i.e., non-interest-bearing and interest-bearing demand, savings and money market accounts) is considered equal to their respective carrying amounts as reported in the consolidated balance sheets. The fair value disclosed for demand deposits does not include the benefit that results from the low-cost funding provided by deposit liabilities compared to the cost of borrowing funds in the market. Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar certificates to a schedule of aggregated monthly maturities of time deposits. Borrowings and accrued interest payable: The carrying values reported in the consolidated balance sheets approximate fair value. OFF-BALANCE SHEET: Interest rate futures contracts: The fair values for interest rate futures contracts are based upon quoted market prices. The fair value of these contracts has been reflected in the consolidated balance sheets in the carrying value of the securities available-for-sale portfolio as part of the mark-to-market valuation. Interest Rate Swap, Cap and Floor Agreements: The fair values of interest rate swap, cap and floor agreements are estimated by comparing the contractual rates First Banks is paying to market rates quoted on new agreements with similar creditworthiness. Forward contracts to sell mortgage-backed securities: The fair values for forward contracts to sell mortgage-backed securities are based upon quoted market prices. The fair value of these contracts has been reflected in the consolidated balance sheets in the carrying value of the loans held for sale portfolio as part of the lower of cost or market valuation. Credit commitments: The majority of the commitments to extend credit and commercial and standby letters of credit contain variable interest rates and credit deterioration clauses and, therefore, the carrying value of these credit commitments approximates fair value. (14) EMPLOYEE BENEFITS First Banks and all of its subsidiaries had participated in a noncontributory defined contribution pension plan covering substantially all employees who met minimum age and service requirements. The annual contributions to the plan were equal to 3.5% of each participant's covered compensation under 50% of the Social Security taxable wage base and 7% of covered compensation in excess of that amount. This pension plan was terminated as of December 31, 1993 and the vested benefits were distributed during the first quarter of 1994 to the participants of the plan or directly rolled over into First Banks' new profit-sharing plan which was effective April 1, 1994. Maximum covered compensation under the plan was $200,000 as indexed for inflation by the Secretary of the Treasury. The trustee of the plan was the trust department of one of the Subsidiary Banks. Total pension expense was $725,000 for the year ended December 31, 1993. First Banks' new profit-sharing plan is a self-administered savings and incentive plan, which qualifies under Section 401(k) of the IRC, covering substantially all employees. Under the plan, employer matching contributions are determined annually by First Banks' Board of Directors. Employee contributions are limited to 15% of an employee's compensation, not to exceed $9,500 for 1995. Total employer contributions under the plan were $448,000 and $477,000 for the years ended December 31, 1995 and 1994, respectively. Postretirement benefits other than pensions and postemployment benefits are generally not provided for First Banks' employees. F-31 124 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (15) PREFERRED STOCK First Banks has three classes of preferred stock outstanding. On September 15, 1992, First Banks issued and sold, pursuant to an effective registration statement under the Securities Act of 1933, 2,200,000 shares of Class C 9% cumulative increasing rate, redeemable, preferred stock. Class C preferred stock ranks senior to both the Class A preferred stock and the Class B preferred stock in terms of dividend and liquidation rights. Holders of the Class C preferred stock do not have any voting rights except in limited circum-stances or as expressly required by law. The holders of the Class A and Class B preferred stock have full voting rights. Dividends on the Class A and Class B preferred stock are adjustable quarterly based on the highest of the Treasury Bill Rate or the Ten Year Constant Maturity Rate for the two-week period immediately preceding the beginning of the quarter. This rate shall not be less than 6% nor more than 12% on Class A preferred stock, or less than 7% nor more than 15% on Class B preferred stock. Dividends on the Class C preferred stock are 9% through November 30, 1997. On December 1, 1997, the annual dividend rate increases to 9.75%. Class A preferred stock is convertible into shares of common stock at a rate based on the ratio of the par value of the preferred stock to the current market value of the common stock at the date of conversion, to be determined by independent appraisal at the time of conversion. Shares of Class A preferred stock may be redeemed by First Banks at any time at 105% of par value. On April 26, 1993, 100,000 shares of Class A preferred stock was converted into 516.83 shares of First Banks common stock. The conversion of the Class A preferred stock into common stock had an insignificant effect on earnings per share and, thus, supplemental information has not been provided. Class B preferred stock may not be redeemed or converted. Class C preferred stock may not be converted, but may be redeemed at stated value after December 1, 1997. Redemption of any issue of preferred stock requires the prior approval of the Federal Reserve Board. The annual dividend rates were as follows:
1995 1994 1993 ---- ---- ---- Class C preferred stock............................................... 9.0% 9.0% 9.0% Class A preferred stock............................................... 6.0 6.0 6.0 Class B preferred stock............................................... 7.0 7.0 7.0
(16) TRANSACTIONS WITH RELATED PARTIES Outside of normal customer relationships, no directors or officers of First Banks, no stock-holders holding over 5% of First Banks' voting securities and no corporations or firms with which such persons or entities are associated currently maintain or have maintained, since the beginning of the last full fiscal year, any significant business or personal relationship with First Banks or its subsidiaries, other than such as arises by virtue of such position or ownership interest in First Banks or its subsidiaries, except as described in the following paragraphs. During 1995, 1994 and 1993, Tidal Insurance Limited (Tidal), a corporation owned indirectly by First Banks' Chairman and his children, received approximately $192,000, $233,000 and $126,000, respectively, in insurance premiums for accident and health insurance policies purchased by loan customers of First Banks. The insurance policies are issued by an unaffiliated company and then ceded to Tidal. First Banks believes the premiums paid by the loan customers of First Banks are comparable to those that such loan customers would have paid if the premiums were subsequently being ceded to an unaffiliated third-party insurer. In addition, for the years ended December 31, 1995, 1994 and 1993, First Securities America, Inc., doing business as First Banc Insurors, received approximately $196,000, $195,000 and $256,000, respectively, in commissions or insurance premiums for mortgage, forced hazard and collateral protection insurance paid by customers of the Subsidiary Banks to the unaffiliated, third-party insurors to which First Banc Insurors placed such policies. In addition, First Banc Insurors received approximately $999,000, $635,000 and $1,067,000 for each of the three years ended December 31, 1995, 1994 and 1993, respectively, in F-32 125 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) commissions in connection with the purchase and/or sale of annuities and securities by certain customers of the Subsidiary Banks. Commissions received by First Banc Insurors in connection with the purchase and/or sale of such annuities and securities were paid by an unaffiliated, third-party company. First Securities America, Inc. is owned by a trust established and administered by and for the benefit of First Banks' Chairman and members of his immediate family. The insurance premiums on which the aforementioned commissions were earned were competitively bid and First Banks deems the commissions First Banc Insurors earned to be comparable to those which would have been earned by an unaffiliated third-party agent. Through a facilities management agreement with FirstServ, Inc., First Services, L.P. provides data processing services and operational support for First Banks and its subsidiaries. First Services, L.P. is a limited partnership indirectly owned by First Banks' Chairman and his children through its General Partners and Limited Partners. FirstServ, Inc. paid $2.9 million, $2.5 million and $2.3 million in fees to First Services, L.P. under the terms of the facilities management agreement for the years ended December 31, 1995, 1994 and 1993, respectively. (17) CAPITAL STOCK OF SUBSIDIARIES FIRST BANKS AMERICA, INC. First Banks owns all of the Class B Common Stock (Class B common) of FBA representing 65.41% of all classes of outstanding voting stock at December 31, 1995. FBA Common Stock (Class A common), which is publicly traded on the New York Stock Exchange, is the only other class of voting stock. During 1995 and 1994, options were exercised to purchase 30,633 and 35,567 shares of Class A common at an exercise price of $3.75 per share. Offsetting the decrease in First Banks' ownership interest in FBA are repurchases of FBA's Class A common. For the year ended December 31, 1995, FBA repurchased 79,603 shares of Class A common. As a result of these transactions, First Banks' ownership interest changed from 65.05% as of August 31, 1994 to 65.41% and 64.60% at December 31, 1995 and 1994, respectively. The exercising of the options and repurchasing of Class A common resulted in a reduction of First Banks' capital surplus of $172,000 and $125,000 for the years ended December 31, 1995 and 1994, respectively. The Stock Purchase and Operating Agreement (FBA Agreement) between First Banks and FBA provides for certain limitations on the capital structure of FBA. The FBA Agreement provides that, after August 31, 1999, each share of Class B common will be convertible into one share of Class A common. The Class B common will not be registered with the Securities and Exchange Commission or listed for trading on the New York Stock Exchange until at least August 31, 1999. Thereafter, First Banks will have the right to require FBA to register with the Securities and Exchange Commission all or a portion of the shares of Class A common received upon conversion of First Banks' Class B common. First Banks, as the owner of the Class B common, has certain antidilutive rights for 7 1/2 years after the date of transaction which would enable First Banks to maintain an ownership interest of at least 55% in the event FBA issues additional shares of Class A common. The Class B common may not be transferred by First Banks without the prior approval of FBA, except in certain limited instances. In addition, the Class B common has dividend rights which are inferior to those of the Class A common, in the event FBA commences the payment of dividends in the future. FBA has a stock option plan under which options were granted to certain directors and senior officers to purchase shares of Class A Common. At December 31, 1995 and 1994, FBA had options outstanding to purchase up to 67,500 and 98,133, respectively, shares of Class A common at an exercise price of $3.75. In connection with a previous corporate restructuring, FBA issued warrants for the purchase of additional Class A common. At December 31, 1995 and 1994, FBA had warrants outstanding to purchase 196,999 shares of Class A common. The exercise prices with respect to these warrants are $.75 for 131,336 shares and $81.15 for 65,663 shares. Management believes the latter warrants have little, if any, fair market value. F-33 126 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The market value of FBA's Class A common was approximately $12.25 per share at December 31, 1995. If the options to acquire 67,500 shares and the warrants to acquire 131,336 shares of Class A common were exercised, First Banks' ownership interest in FBA would be reduced from 65.41% to 62.17%. FIRST COMMERCIAL BANCORP, INC. First Banks owns 93.29% of all outstanding voting stock of FCB at December 31, 1995. FCB Common is traded on the NASDAQ Small Cap Market System. First Banks also purchased $6.5 million of debentures (FCB Debentures) secured by all of the outstanding stock of First Commercial. The FCB Debentures bear interest at 12% per year and mature five years after issuance. The FCB Debentures, including any accrued but unpaid interest thereon, will be converted at maturity into FCB Common at $.10 per share. However, at the election of First Banks, the FCB Debentures may be converted into FCB Common at the same rate at any time after issuance. FCB is in process of offering up to $5.0 million of FCB Common (Rights Offering) to current shareholders of FCB at $0.10 per share. If the Rights Offering is completed and fully subscribed, First Banks' ownership of FCB will be reduced to approximately 50.25%, excluding the effect of conversion of the FCB Debenture. If the FCB Debentures and the accrued interest thereon had been converted by First Banks following the Rights Offering, its ownership would be approximately 66.95%. In addition, eligible shareholders of FCB Common have the right to receive additional stock or cash based on certain future events. At June 30, 1996, FCB will issue additional shares of FCB Common or cash if the adjusted stockholders' equity per share exceeds $.10 per share. For this purpose, stockholders' equity is adjusted to the extent the allowance for possible loan losses at June 30, 1995 is determined to exceed the amount derived from a specified formula applied to the remaining loan portfolio and reduced by an imputed interest factor applied to the capital provided by First Banks and the subscribers to the Rights Offering. Thereafter, through October 31, 1998, present stockholders may receive additional shares of FCB Common or cash based on recoveries received from a pool of specified charged-off loans. First Banks does not believe that the issuance of additional FCB Common or cash based on the occurrence of these certain events, if any, will have a significant impact on the financial condition or results of operations of First Banks. (18) DISTRIBUTION OF EARNINGS OF SUBSIDIARIES The Subsidiary Banks are restricted by various state and federal regulations, as well as by the terms of the Credit Agreement described in Note 8, in the amount of dividends which is available for payment of dividends to First Banks, Inc. Under the most restrictive of these requirements, the future payment of dividends from subsidiary financial institutions is limited to approximately $45.3 million, unless prior permission of the regulatory authorities or the lending banks is obtained. F-34 127 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (19) PARENT COMPANY ONLY FINANCIAL INFORMATION Following are condensed balance sheets of First Banks (parent company only) as of December 31, 1995 and 1994, and condensed statements of income and cash flows for the years ended December 31, 1995, 1994 and 1993: CONDENSED BALANCE SHEETS
DECEMBER 31, --------------------- 1995 1994 ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) ASSETS Cash deposited in subsidiary banks.............................................. $ 1,331 7,974 Investment in subsidiaries, at equity........................................... 289,211 236,328 Investment securities........................................................... 17,544 18,370 Other assets.................................................................... 19,943 4,591 -------- ------- Total assets............................................................ $328,029 267,263 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Notes payable................................................................... 88,135 46,203 Accrued expenses and other liabilities.......................................... 5,289 3,748 -------- ------- Total liabilities....................................................... 93,424 49,951 Stockholders' equity............................................................ 234,605 217,312 -------- ------- Total liabilities and stockholders' equity.............................. $328,029 267,263 ======== =======
CONDENSED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, ---------------------------- 1995 1994 1993 ---- ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Income: Dividends from subsidiaries................................................. $ 57,901 42,500 14,047 Management fees from subsidiaries........................................... 5,108 4,304 4,081 Other income................................................................ 2,015 2,410 854 -------- ------- ------ Total income............................................................ 65,024 49,214 18,982 -------- ------- ------ Expenses: Interest expense............................................................ 5,861 1,034 169 Salaries and employee benefits.............................................. 4,597 4,723 3,735 Legal and professional fees................................................. 2,426 1,892 994 Other expenses.............................................................. 3,035 2,391 1,931 -------- ------- ------ Total expenses.......................................................... 15,919 10,040 6,829 -------- ------- ------ Income before income tax benefit, equity in undistributed earnings (loss) of subsidiaries and cumulative effect of change in accounting principle............................................................. 49,105 39,174 12,153 Income tax benefit.............................................................. (2,007) (1,162) (631) -------- ------- ------ Income before equity in undistributed earnings (loss) of subsidiaries and cumulative effect of change in accounting principle............... 51,112 40,336 12,784 Equity in undistributed earnings (loss) of subsidiaries, net of dividends paid.......................................................................... (26,641) (16,304) 9,644 Income before cumulative effect of change in accounting principle....... 24,471 24,032 22,428 Cumulative effect of change in accounting principle............................. -- -- 766 -------- ------- ------ Net income.............................................................. $ 24,471 24,032 23,194 ======== ======= ======
F-35 128 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ---------------------------- 1995 1994 1993 ---- ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Cash flows from operating activities: Income before cumulative effect of change in accounting principle........... $ 24,471 24,032 22,428 Adjustments to reconcile net income to net cash provided by operating activities: Net income of subsidiaries.............................................. (30,973) (24,931) (23,691) Dividends from subsidiaries............................................. 57,901 42,500 14,047 Other, net.............................................................. 58 (511) 1,931 -------- ------- ------- Net cash provided by operating activities........................... 51,457 41,090 14,715 -------- ------- ------- Cash flows from investing activities: (Increase) decrease in investment securities................................ 2,420 (2,017) 31,988 Acquisitions of subsidiaries................................................ (49,996) (72,624) -- Capital contributions to subsidiaries....................................... (44,329) (14,656) (2,528) Return of subsidiary capital................................................ 12,149 -- -- (Decrease) increase in advances to subsidiaries............................. (13,529) -- 1,600 Other, net.................................................................. (1,011) (125) -- -------- ------- ------- Net cash provided by (used in) investing activities................. (94,296) (89,422) 31,060 -------- ------- ------- Cash flows from financing activities: Increase (decrease) in notes payable........................................ 41,932 46,203 (30,000) Payment of preferred stock dividends........................................ (5,736) (5,735) (5,766) -------- ------- ------- Net cash provided by (used in) financing activities................. 36,196 40,468 (35,766) -------- ------- ------- Net increase (decrease) in cash and cash equivalents................ (6,643) (7,864) 10,009 Cash and cash equivalents, beginning of year.................................... 7,974 15,838 5,829 -------- ------- ------- Cash and cash equivalents, end of year.......................................... $ 1,331 7,974 15,838 ======== ======= =======
(20) CONTINGENT LIABILITIES In the ordinary course of business, there are various legal proceedings pending against First Banks. Management, after consultation with legal counsel, is of the opinion that the ultimate resolution of these proceedings will have not material effect on the consolidated financial position or results of operations of First Banks. (21) EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT AUDITORS In accordance with the provisions of the FCB Agreement described in Note 2 to the consolidated financial statements, on May 18, 1996, FCB completed an offering of a maximum of $5.0 million of newly-issued common stock at $.10 per share to its shareholders, other than First Banks, and to individuals who were not shareholders of FCB. In June 1996, FCB concluded a concurrent offering to exchange shares of its common stock for certain outstanding dividend obligations and accrued interest thereon of FCB. As a result of these offerings, FCB issued 29.7 million additional shares of common stock for $2.97 million and exchanged 6.4 million shares of its common stock for its obligation to pay $643,000 of dividends and accrued interest. This newly-issued stock reduced the ownership of First Banks in FCB to 61.46%, excluding the effect of the potential conversion of the debentures held by First Banks. If the debentures and accrued interest thereon had been converted as of September 30, 1996, First Banks' ownership of FCB would have been 76.96%. For the periods from their respective dates of acquisition through May 18, 1996, FCB and First Commercial were included in the consolidated federal income tax return and the unitary or consolidated state income tax returns of First Banks. Due to the reduction of its ownership below 80%, for periods subsequent to that date FCB and First F-36 129 FIRST BANKS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Commercial are no longer eligible for consolidation with First Banks for federal tax purposes. Furthermore, in the event First Banks' interest in FCB were to increase to over 80% in the future, current tax regulations preclude FCB and First Commercial from reconsolidating with First Banks for five years from the date of deconsolidation, without the permission of the Internal Revenue Service. On November 1, 1996, FBA completed its acquisition of Sunrise Bancorp, Roseville, California, (Sunrise) and its wholly owned subsidiary, Sunrise Bank of California, in exchange for $17.6 million in cash. Sunrise's total assets were $112.4 million, consisting primarily of loans of $61.1 million and cash and cash equivalents and investment securities of $48.2 million. The acquisition was funded from available cash of $3.6 million, and borrowings from First Banks of $14.0 million. The funds provided by First Banks were borrowed by it under its Credit Agreement. The transaction was accounted for using the purchase method of accounting. The excess of cost over the fair value of the net assets acquired was approximately $3.1 million and is being amortized over 15 years. The results of operations of Sunrise for periods prior to its acquisition are not material to the consolidated financial statements. On July 18, 1996, First Banks renewed its Credit Agreement under which its revolving credit facility was scheduled to mature as of July 12, 1996. The renewed Credit Agreement provides a $40 million revolving loan commitment and a $50 million term loan. Interest under the revolving loan commitment and the term loan is payable monthly at the lead bank's corporate base rate or, at the option of First Banks, at the London Interbank Offered Rate plus 1.50% and 1.25%, respectively. Loans and accrued interest under the revolving loan commitment mature on July 11, 1997. The term loan requires quarterly principal payments of $2.5 million until its maturity on July 12, 2000, at which time the remaining principal and accrued interest is due and payable. The Credit Agreement is collateralized by all of the stock of the Subsidiary Banks which is owned by First Banks. The Credit Agreement requires maintenance of certain minimum capital ratios for each financial institution subsidiary and prohibits the payment of dividends on First Banks' common stock. At September 30, 1996, First Banks and the Subsidiary Banks were in compliance with all restrictions and requirements in the Credit Agreement. On September 30, 1996, President Clinton signed legislation establishing a one-time special deposit insurance assessment to recapitalize the Savings Association Insurance Fund (SAIF) of the Federal Deposit Insurance Corporation (FDIC), thereby bringing it into parity with the Bank Insurance Fund (BIF) of the FDIC. As a result of this legislation, First Banks recorded an $8.6 million charge for the assessment in its consolidated financial statements as of September 30, 1996. It is expected that First Banks' cost of deposit insurance will decrease by approximately $2.0 million for the year ended December 31, 1997 compared to its cost of deposit insurance for the year ending December 31, 1996, excluding the effect of the special assessment. The expected decrease in the cost of deposit insurance is predicated on an assessment rate for 1997 of 1.29 basis points and 6.44 basis points for each $100 of assessable deposits of BIF and SAIF deposits, respectively, compared to the current assessment rate, applicable only to SAIF deposits, of 23 basis points. During 1996, First Banks has shortened the expected life of its loan portfolio by changing the distribution of that portfolio primarily between residential mortgage and indirect automobile loans to commercial, commercial real estate and construction and development loans. This change created a disparity between the estimated life of the portfolio and that which had been originally anticipated in its interest rate risk simulation models. These models are used to determine the need for hedges of its interest rate exposure. Consequently, in November 1996, First Banks realigned the maturity of its interest-bearing liabilities with the current estimated life of its loan portfolio through the termination of $75 million of interest rate swap agreements. This resulted in a loss of $5.3 million which has been deferred. The deferred loss will be amortized over the remaining lives of the agreements, unless the underlying liabilities are repaid in advance of their expected maturities. (22) BASIS OF PRESENTATION-INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The unaudited interim consolidated financial statements include the accounts of First Banks and its subsidiaries after elimination of material intercompany transactions. This unaudited data, in the opinion of First Banks, includes all adjustments necessary for the fair presentation thereof. All adjustments made were of a normal and recurring nature. F-37 130 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY INDEPENDENT AUDITORS' REPORT KPMG PEAT MARWICK LLP The Board of Directors and Stockholders First Commercial Bancorp, Inc.: We have audited the accompanying consolidated balance sheet of First Commercial Bancorp, Inc. and subsidiary (the Company) as of December 31, 1995, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The accompanying 1994 and 1993 consolidated financial statements of First Commercial Bancorp, Inc. and subsidiary were audited by other auditors whose report thereon dated March 29, 1995 included an explanatory paragraph that described the Company's uncertain ability to continue as a going concern and the Company's various regulatory agreements with the Federal Deposit Insurance Corporation, the California State Banking Department and the Federal Reserve Bank of San Francisco. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the 1995 consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Commercial Bancorp, Inc. and subsidiary as of December 31, 1995, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ KPMG PEAT MARWICK LLP St. Louis, Missouri March 8, 1996 F-38 131 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of First Commercial Bancorp, Inc.: We have audited the consolidated balance sheets of FIRST COMMERCIAL BANCORP, INC. (a Delaware corporation) and subsidiary as of December 31, 1994, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the two years in the period ended December 31, 1994 as restated (see Note 16). These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of First Commercial Bancorp, Inc. and subsidiary as of December 31, 1994 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that both First Commercial Bancorp, Inc. (the ``Company'') and First Commercial Bank (the ``Bank'') will continue as going concerns. As discussed in Notes 2 and 15 to the financial statements, both the Company and the Bank have entered into various regulatory agreements (the ``Agreements'') with the Federal Deposit Insurance Corporation (the ``FDIC''), the California State Banking Department and the Federal Reserve Bank of San Francisco. These Agreements require the Company and the Bank, among other compliance terms, to maintain certain minimum capital levels. The Company and the Bank are not in compliance with these minimum capital requirements and have suffered recurring losses from operations. An amended capital plan has been submitted to the bank regulators, which plan was approved by the FDIC on January 30, 1995. The plan consists of both an intent to decrease the Bank's asset size and the raising of capital through the sale of stock. There is no assurance that the Company will be able to raise sufficient capital to meet the minimum capital requirements. Failure to meet regulatory capital requirements or comply with the terms of the Agreements could subject the Company and the Bank to additional actions by the bank regulatory authorities, including restrictions on operations, mandatory asset dispositions or seizure. These matters raise substantial doubt about the ability of the Company and the Bank to continue as going concerns. Their ability to continue as going concerns is dependent on many factors, one of which is regulatory action and the ability to raise sufficient capital. Management's plans in regard to these matters are described in Notes 2 and 15. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Arthur Andersen LLP San Francisco, California March 29, 1995 F-39 132 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, ---------------- 1995 1994 ---- ---- ASSETS Cash and cash equivalents: Cash and due from banks................................................ $ 9,768 19,059 Federal funds sold..................................................... 9,000 27,200 Securities purchased under resale agreements........................... -- 40,000 -------- ------- Total cash and cash equivalents.................................... 18,768 86,259 -------- ------- Interest-bearing deposits with other financial institutions with original maturities over three months............................................. -- 299 Investment securities: Available for sale, at market value.................................... 63,291 13,727 Held to maturity, at amortized cost (estimated market value of $11,005 and $3,815 at December 31, 1995 and 1994, respectively)............... 10,958 3,963 -------- ------- Total investment securities........................................ 74,249 17,690 -------- ------- Loans: Commercial and financial............................................... 33,752 69,597 Real estate construction and development............................... 4,094 16,386 Real estate mortgage................................................... 32,857 38,439 Consumer and installment............................................... 3,508 5,993 -------- ------- Total loans........................................................ 74,211 130,415 Unearned discount.......................................................... (196) (243) Allowance for possible loan losses......................................... (5,388) (7,437) -------- ------- Net loans.......................................................... 68,627 122,735 -------- ------- Lease receivable, net...................................................... 991 1,038 Bank premises and equipment, net........................................... 2,247 2,637 Accrued interest receivable................................................ 1,429 1,287 Other real estate.......................................................... 1,380 5,222 Other assets............................................................... 1,844 2,139 -------- ------- Total assets....................................................... $169,535 239,306 ======== ======= The accompanying notes are an integral part of the consolidated financial statements.
F-40 133 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (CONTINUED) (DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
DECEMBER 31, ---------------- 1995 1994 ---- ---- LIABILITIES Deposits: Demand: Non-interest-bearing............................................... $ 27,517 56,483 Interest-bearing................................................... 39,646 68,840 Savings................................................................ 16,707 21,695 Time deposits: Time deposits of $100 or more...................................... 18,764 25,317 Other time deposits................................................ 53,530 61,201 -------- ------- Total deposits................................................. 156,164 233,536 Accrued interest payable................................................... 487 335 Accrued and other liabilities.............................................. 2,805 1,080 12% convertible debentures................................................. 6,500 -- -------- ------- Total liabilities.............................................. 165,956 234,951 -------- ------- STOCKHOLDERS' EQUITY Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued and outstanding................................................... -- -- Common stock, $.01 par value, 250,000,000 shares and 5,000,000 shares authorized at December 31, 1995 and 1994, respectively; 69,675,110 shares issued and outstanding at December 31, 1995 and 4,775,110 shares issued and 4,675,110 shares outstanding at December 31, 1994, respectively...... 697 48 Capital surplus............................................................ 33,251 28,495 Retained deficit........................................................... (30,311) (22,880) Treasury stock, at cost: 1995, none; 1994, 100,000 shares.................. -- (709) Net fair value adjustment for securities available for sale................ (58) (599) -------- ------- Total stockholders' equity..................................... 3,579 4,355 -------- ------- Total liabilities and stockholders' equity..................... $169,535 239,306 ======== ======= The accompanying notes are an integral part of the consolidated financial statements.
F-41 134 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31, ----------------------------- 1995 1994 1993 ---- ---- ---- Interest income: Interest and fees on loans........................................ $ 9,734 15,126 17,787 Investment securities............................................. 1,981 1,109 1,286 Federal funds sold, securities purchased under resale agreements and other....................................................... 2,035 2,121 1,027 ------- ------- ------- Total interest income..................................... 13,750 18,356 20,100 ------- ------- ------- Interest expense: Deposits: Interest-bearing demand....................................... 1,082 1,989 2,405 Savings....................................................... 481 589 723 Time deposits of $100 or more................................. 1,054 1,123 1,131 Other time deposits........................................... 3,366 2,157 2,026 Other borrowings.................................................. 153 52 85 ------- ------- ------- Total interest expense.................................... 6,136 5,910 6,370 ------- ------- ------- Net interest income....................................... 7,614 12,446 13,730 Provision for possible loan losses.................................... 3,885 9,809 8,100 ------- ------- ------- Net interest income after provision for possible loan losses.................................................. 3,729 2,637 5,630 ------- ------- ------- Noninterest income: Service charges on deposit accounts and customer service fees..... 801 1,282 1,426 Other income...................................................... 527 691 1,569 ------- ------- ------- Total noninterest income.................................. 1,328 1,973 2,995 ------- ------- ------- Noninterest expense: Salaries and employee benefits.................................... 4,117 6,568 6,951 Occupancy, net of rental income................................... 1,603 1,443 1,475 Furniture and equipment........................................... 581 930 1,075 Federal Deposit Insurance Corporation premiums.................... 629 820 866 Postage, printing and supplies.................................... 297 372 527 Legal, examination and professional fees.......................... 1,164 725 843 Data processing................................................... 145 80 72 Communications.................................................... 210 82 162 Losses and expenses on foreclosed property........................ 2,631 6,035 4,805 Amortization and write-off of acquisition intangibles............. -- 1,047 73 Other............................................................. 1,212 2,291 2,854 ------- ------- ------- Total noninterest expense................................. 12,589 20,393 19,703 ------- ------- ------- Loss before provision (benefit) for income taxes.......... (7,532) (15,783) (11,078) Provision (benefit) for income taxes.................................. (101) 2,407 (3,767) ------- ------- ------- Net loss.................................................. $(7,431) (18,190) (7,311) ======= ======= ======= Net loss per common share............................................. $ (.33) (3.89) (1.56) ======= ======= ======= Weighted average common stock and common stock equivalents outstanding (in thousands)...................................................... 22,826 4,675 4,675 ======= ======= ======= The accompanying notes are an integral part of the consolidated financial statements.
F-42 135 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY THREE YEARS ENDED DECEMBER 31, 1995 (DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
NET FAIR VALUE ADJUSTMENT TOTAL RETAINED FOR SECURITIES STOCK- COMMON CAPITAL EARNINGS TREASURY AVAILABLE HOLDERS' STOCK SURPLUS (DEFICIT) STOCK FOR SALE EQUITY ------ ------- --------- -------- -------------- ------- Balance, January 1, 1993................ $ 48 28,484 2,621 (709) -- 30,444 Net loss................................ -- -- (7,311) -- -- (7,311) Exercise of stock options............... -- 11 -- -- -- 11 ---- ------ ------- ---- ---- ------- Balance, December 31, 1993.............. 48 28,495 (4,690) (709) -- 23,144 Adoption of SFAS 115.................... -- -- -- -- 342 342 Net loss................................ -- -- (18,190) -- -- (18,190) Net fair value adjustment for securities available for sale.................... -- -- -- -- (941) (941) ---- ------ ------- ---- ---- ------- Balance, December 31, 1994.............. 48 28,495 (22,880) (709) (599) 4,355 Net loss................................ -- -- (7,431) -- -- (7,431) Retirement of treasury stock............ (1) (708) -- 709 -- -- Net fair value adjustment for securities available for sale.................... -- -- -- -- 541 541 Issuance of common stock pursuant to stock purchase agreement.............. 650 5,464 -- -- -- 6,114 ---- ------ ------- ---- ---- ------- Balance, December 31, 1995.............. $697 33,251 (30,311) -- (58) 3,579 ==== ====== ======= ==== ==== ======= The accompanying notes are an integral part of the consolidated financial statements.
F-43 136 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ---------------------------- 1995 1994 1993 ---- ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Cash flows from operating activities: Net loss.................................................................... $ (7,431) (18,190) (7,311) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization........................................... 899 958 1,024 Provision for possible loan losses...................................... 3,885 9,809 8,100 Write-down of other real estate......................................... 1,141 4,963 2,981 Loss (gain) on disposal of assets....................................... (149) 88 36 Benefit of deferred taxes............................................... (6,081) (6,497) (1,090) Write-off of intangible................................................. -- 1,047 -- Valuation allowance for deferred taxes.................................. 6,081 8,904 -- Increase (decrease) in interest receivable and other assets............. 521 3,156 (1,459) Increase (decrease) in interest payable................................. 275 (19) (11) Increase (decrease) in accrued expenses and other liabilities........... 1,602 (1,404) 612 -------- ------- ------- Net cash provided by operating activities........................... 743 2,815 2,882 -------- ------- ------- Cash flows from investing activities: Net (increase) decrease in interest-bearing deposits with other financial institutions.............................................................. 299 3,674 (308) Proceeds from maturity of investment securities............................. 2,168 30,982 8,160 Proceeds from the sale of investment securities............................. 1,062 -- -- Purchase of investment securities........................................... (59,451) (5,135) (30,028) Net decrease in loans....................................................... 46,423 48,082 28,452 Net decrease in deferred loan fees.......................................... (47) (301) (179) Purchases of premises and equipment......................................... (156) (222) (387) Net decrease in lease financing............................................. 47 47 23 Proceeds from sale of other real estate..................................... 4,522 10,340 8,111 Payments to complete other real estate...................................... -- (638) (487) -------- ------- ------- Net cash provided by investing activities........................... (5,133) 86,829 13,357 -------- ------- ------- Cash flows from financing activities: Net increase (decrease) in demand and savings deposits...................... (49,980) (97,634) 12,156 Net increase (decrease) in time deposits.................................... (10,827) 7,375 11,894 Payment from sale of deposits, net.......................................... (14,541) -- -- Proceeds from the issuance of common stock.................................. 6,114 -- 11 Proceeds from the issuance of convertible debentures........................ 6,133 -- -- -------- ------- ------- Net cash (used in) provided by financing activities................. (63,101) (90,259) 24,061 -------- ------- ------- Net increase (decrease) in cash and cash equivalents................ (67,491) (615) 40,300 Cash and cash equivalents at beginning of year.................................. 86,259 86,874 46,574 -------- ------- ------- Cash and cash equivalents at end of year........................................ $ 18,768 86,259 86,874 ======== ======= ======= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest................................................................ $ 5,861 5,929 6,380 Income taxes............................................................ -- 17 24 ======== ======= ======= Supplemental schedule of noncash investing and financing activities--net decrease in other real estate as a result of foreclosure or financing, and other related transactions.................................................... $ 1,672 6,714 ======== ======= ======= The accompanying notes are an integral part of the consolidated financial statements.
F-44 137 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements of First Commercial Bancorp, Inc. and subsidiary (FCB or the Company) have been prepared in accordance with generally accepted accounting principles and conform to practices prevalent among financial institutions. As more fully discussed in Note 2, FCB executed an Amended and Restated Stock Purchase Agreement (Stock Purchase Agreement) with First Banks, Inc., St. Louis, Missouri (First Banks) and Mr. James F. Dierberg, Chairman, President and Chief Executive Officer of First Banks, to provide for the recapitalization of FCB and its wholly owned subsidiary, First Commercial Bank (Bank). As a result, First Banks owned 93.29% of the outstanding voting stock of FCB at December 31, 1995. As provided by the Stock Purchase Agreement, First Banks initially owned Bank preferred stock and Bank common stock which was subsequently converted into FCB common stock on December 27, 1995. The consolidated financial statements have been prepared as if such conversion had occurred on August 22 and 23, 1995, respectively, and as if FCB had owned all of the outstanding stock of the Bank throughout 1995. The Bank preferred stock was nonvoting stock and had no dividend requirement, except to the extent dividends may be paid on Bank common stock. The Bank common stock, during the period it was held by First Banks, was subject to an irrevocable proxy giving the FCB Board of Directors the right to vote such shares. Consequently, although First Banks owned approximately 99% of the outstanding Bank common stock during this period, it did not have voting control until its stock was converted to FCB common stock. The following is a summary of the more significant policies followed by FCB: BUSINESS FCB provides a full range of banking services to individual and corporate customers through its subsidiary bank, First Commercial Bank, located in Sacramento, Campbell, Concord, Roseville, and San Francisco, California. FCB and the Bank are subject to regulations of various federal agencies and undergo periodic examinations by these regulatory agencies. BASIS OF PRESENTATION The consolidated financial statements of FCB have been prepared in accordance with generally accepted accounting principles and conform to predominant practices within the banking industry. Management of FCB has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare the consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the parent company and its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated. CASH AND CASH EQUIVALENTS The Bank maintains deposit balances with various banks which are necessary for check collection and account activity charges. Cash in excess of immediate requirements is invested on a daily basis in federal funds, interest-bearing deposits with other financial institutions and securities purchased under resale agreements. Cash, due from banks, federal funds sold, interest-bearing deposits with original maturities of three months or less and securities purchased under resale agreements are considered to be cash and cash equivalents for purposes of the consolidated statements of cash flows. The Bank is required to maintain certain daily reserve balances in accordance with F-45 138 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) regulatory requirements. These reserve balances maintained in accordance with such requirements were $1.13 million and $2.34 million at December 31, 1995 and 1994, respectively. INVESTMENT SECURITIES The classification of investment securities as available for sale or held to maturity is determined at the date of purchase. FCB does not engage in the trading of investment securities. Investment securities designated as available for sale, which include any security which FCB has no immediate plan to sell but which may be sold in the future under different circumstances, are stated at fair value. Realized gains and losses are included in noninterest income upon commitment to sell, based on the amortized cost of the individual security sold. Unrealized gains and losses are recorded, net of related income tax effects, in a separate component of stockholders' equity. All previous fair value adjustments included in the separate component of stockholders' equity are reversed upon sale. Investment securities designated as held to maturity, which include any security for which FCB has the positive intent and ability to hold to maturity, are stated at cost, net of amortization of premium and accretion of discount computed on the level yield method, taking into consideration the level of current and anticipated prepayments. LOANS Loans are carried at cost, adjusted for amortization of premiums and accretion of discounts using a method which approximates the level yield method. Interest and fees on loans are recognized as income using the interest method. Loans are stated at cost as FCB has the ability and it is management's intention to hold them to maturity. The accrual of interest on loans is discontinued when it appears that interest or principal may not be paid in a timely manner in the normal course of business. Generally, payments received on nonaccrual loans are recorded as principal reductions. Interest income is recognized after all principal has been repaid or an improvement in the condition of the loan has occurred which would warrant resumption of interest accruals. FCB adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan, and SFAS No. 118, Accounting by Creditors for Impairment of a Loan--Income Recognition and Disclosures, which amends SFAS 114, on January 1, 1995. SFAS 114 defines the recognition criterion for loan impairment and the measurement methods for certain impaired loans and loans whose terms have been modified in troubled-debt restructurings. SFAS 118 amends SFAS 114 to allow a creditor to use existing methods for recognizing interest income on an impaired loan. FCB has elected to continue to use its existing method for recognizing interest on impaired loans as described above. The implementation of these statements did not have a material effect on FCB's financial position and resulted in no additional provision for possible loan losses. ALLOWANCE FOR POSSIBLE LOAN LOSSES The allowance for possible loan losses is maintained at a level considered adequate to provide for potential losses. The provision for possible loan losses is based on a periodic analysis of the loan portfolio by management, considering, among other factors, current economic conditions, loan portfolio composition, past loan loss experience, independent appraisals, loan collateral and payment experience. In addition to the allowance for estimated losses on impaired loans, an overall unallocated allowance is established to provide for unidentified credit losses which are inherent in the portfolio. As adjustments become necessary, they are reflected in the results of operations in the periods in which they become known. BANK PREMISES AND EQUIPMENT Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed on the straight-line method over the estimated useful lives of the related assets. Leasehold improvements F-46 139 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) are capitalized and amortized over the shorter of their estimated useful lives or the related lease terms. Bank premises are depreciated on the straight-line method over 11 to 41 years. Furniture, fixtures and equipment are depreciated on the straight-line method over one to seven years. OTHER REAL ESTATE Other real estate (ORE) which includes real estate acquired through foreclosure or by deed in lieu of foreclosure, is stated at the lower of fair value less applicable selling costs or cost at the time the property is acquired. The excess of cost over fair value of ORE at the date of acquisition is charged to the allowance for possible loan losses. Subsequent reductions in carrying value to reflect current fair value or costs incurred in maintaining the properties are charged to expense as incurred. INTANGIBLES As part of the 1982 acquisition of the business of thirteen branches of California Canadian Bank, a leasehold interest intangible asset was established and is being amortized over the remaining lives of the leases. The unamortized balance at December 31, 1995 and 1994 was $72,000 and $232,000, respectively, and is included in other assets. In 1988, FCB acquired the business of three branches of Citizens Bank of Roseville resulting in excess cost over net assets acquired of $1.43 million. FCB concluded that there was no future value to the intangible and, accordingly, the remaining intangible was charged-off resulting in amortization expense for the year ended December 31, 1994 of $1.05 million. Amortization expense for the year ended December 31, 1993 was $73,000. INCOME TAXES FCB and its subsidiary filed a consolidated federal income tax return for the periods preceding First Banks' acquisition of FCB and the Bank. For the periods subsequent to First Banks' acquisition, FCB and the Bank have joined in filing a consolidated federal income tax return with First Banks. Prior to August 24, 1995, FCB and the Bank each paid their respective portion of federal income taxes or received payments to the extent that tax benefits were realized. Subsequent to the acquisition of FCB common stock by First Banks, FCB and the Bank each pay their respective portion of federal income taxes to, or receive payments from, First Banks to the extent that tax benefits are available within First Banks' consolidated group. As more fully described in Note 8, should First Banks' ownership percentage fall below 80%, any subsequent tax benefits to be realized by FCB will be dependent on the separate profitability of FCB. Effective January 1, 1993, FCB adopted SFAS No. 109, Accounting for Income Taxes. SFAS 109 requires a change from the deferred method of accounting for income taxes, pursuant to Accounting Principles Board Opinion No. 11 (APB 11), to the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Upon adoption of SFAS 109, the one-time cumulative effect of this change in accounting for income taxes was not material to the financial position or results of operations of FCB. Prior years' consolidated financial statements have not been restated to apply the provisions of SFAS 109. FINANCIAL INSTRUMENTS A financial instrument is defined as cash, evidence of an ownership interest in an entity, or a contract that conveys or imposes on an entity the contractual right or obligation to either receive or deliver cash or another financial instrument. F-47 140 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NET LOSS PER COMMON AND COMMON EQUIVALENT SHARES Net loss per share is computed using the weighted average number of shares outstanding during the year plus the dilutive effect, if any, of stock options. RECLASSIFICATIONS Certain 1994 and 1993 amounts have been reclassified to conform with the 1995 presentation. (2) RECAPITALIZATION For each of the three years ended December 31, 1994, FCB and the Bank incurred substantial operating losses related primarily to asset quality problems. These problems continued throughout 1995, resulting in the elimination of FCB's stockholders' equity, and the substantial reduction of the Bank's stockholders' equity, by June 30, 1995. Recognizing that new capital was imperative for the Company's survival, the Board of Directors and management had begun a concerted effort in early 1995 to replenish its capital base. However, the rapidity with which losses were incurred during the first six months of 1995 necessitated expediting this process. As a result, as of June 30, 1995, the Company and the Bank entered into a Stock Purchase Agreement with First Banks and Mr. James F. Dierberg. Pursuant to the Stock Purchase Agreement, Mr. Dierberg provided interim financing for the Bank in the form of a purchase of $1.5 million of nonvoting preferred stock. However, in spite of this additional capital, the leverage capital ratios of FCB and the Bank as of June 30, 1995 had declined to (.23%) and 1.08%, respectively. The Bank's reduced capital level caused it to be classified as ``critically undercapitalized'' for regulatory purposes, subjecting it to the Prompt Corrective Action provisions of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. These provisions required it to seek additional capital or face the possible imposition of a conservatorship or receivership within 90 days. In order to achieve the capital levels required, on August 7, 1995, FCB and the Bank entered into the Stock Purchase Agreement with First Banks and Mr. Dierberg. The Stock Purchase Agreement, and subsequent agreements entered into with First Banks, resulted in a series of transactions as follows: a. On August 22, 1995, First Banks acquired the Bank preferred stock from Mr. Dierberg for $1.5 million. b. On August 23, 1995, First Banks purchased 116,666,666 shares of Bank common stock for an additional $3.5 million. c. On October 31, 1995, First Banks purchased a convertible debenture of FCB for $1.5 million, the proceeds of which were used to increase the capital of the Bank. d. Following the completion of a Special Stockholders' Meeting on December 27, 1995, the shares of Bank preferred stock and Bank common stock held by First Banks were exchanged for 50,000,000 shares of FCB common stock. In addition, First Banks purchased a convertible debenture of FCB for $5.0 million, the proceeds of which, except for $250,000 retained by First Commercial Bancorp, Inc., were contributed to the capital of the Bank. e. On December 28, 1995, First Banks purchased an additional 15,000,000 shares of FCB common stock for $1.5 million, the proceeds of which were used to increase the capital of the Bank. As a result of these transactions, the leverage capital ratios of FCB and the Bank as of December 31, 1995 were 2.14% and 6.58%, respectively. Although FCB continues to be considered ``significantly undercapitalized'' for regulatory purposes, the Bank is considered ``adequately capitalized.'' A ``significantly undercapitalized'' institution is one that has a total risk-based capital ratio of less than 6%, a core risk-based capital ratio of less than 3%, or a leverage ratio that is less than 3%. An ``adequately capitalized'' institution is one that has a total risk-based capital ratio of 8% or greater, a core risk-based capital ratio of 4% or greater, and a leverage ratio of 4% or greater. As of December 31, 1995, First Banks owned 93.29% of the issued and outstanding common stock of FCB. F-48 141 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) As more fully described in Note 19, subsequent to December 31, 1995, FCB has commenced an offering, to its stockholders other than First Banks, of an aggregate of $5.0 million of newly-issued common stock at $.10 per share. A maximum of $1.0 million of this, if not otherwise subscribed to, may be offered to individuals who are not stockholders of FCB. In addition, $969,000 of common stock is being offered in exchange for certain outstanding dividend obligations and accrued interest thereon of FCB. If this offering is fully subscribed, First Banks' ownership in FCB could be reduced to 50.25%, prior to the conversion of the debentures, or 66.95%, if the debentures are immediately converted. (3) SECURITIES PURCHASED UNDER RESALE AGREEMENTS Securities purchased under resale agreements are typically collateralized by U.S. Treasury securities, U.S. government agencies, or mortgage-backed securities and generally have maturities of one month or less. There were no securities purchased under resale agreements at December 31, 1995. On December 31, 1994, there were $40 million of such agreements outstanding which had a maturity date of January 3, 1995. (4) INVESTMENT SECURITIES As of January 1, 1994, FCB adopted SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. SFAS 115 requires that investments in debt and equity securities be classified as ``held to maturity,'' ``trading securities'' or ``available for sale.'' It requires that investments classified as ``held to maturity'' be reported at amortized cost, that investments classified as ``trading'' securities be reported at fair value with unrealized gains and losses included in earnings, and that investments classified as ``available for sale'' be reported at fair value with unrealized gains and losses reported, net of related income tax effects, as a separate component of stockholders' equity. As of January 1, 1994, a security with an amortized cost of $2.09 million and a market value of $2.10 million was classified as ``held to maturity.'' Securities with an amortized cost of $42.34 million and a market value of $42.68 million were classified as ``available for sale.'' The effect of adopting SFAS 115 was to reflect an unrealized gain of $342,000 which was reported as an increase in stockholders' equity as of January 1, 1994. F-49 142 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The amortized cost, unrealized gains and losses and fair value of investment securities at December 31, 1995 and 1994 were as follows:
GROSS GROSS AMORTIZED UNREALIZED UNREALIZED FAIR COST GAINS LOSSES VALUE YIELD --------- ---------- ---------- ----- ----- (DOLLAR EXPRESSED IN THOUSANDS) December 31, 1995: Available for sale: U.S. Treasury securities............................ $10,034 25 (9) 10,050 6.02% U.S. government agencies............................ 53,251 67 (77) 53,241 5.64 ------- --- ---- ------ Total........................................... 63,285 92 (86) 63,291 5.70 ------- --- ---- ------ Held to maturity: U.S. Treasury securities............................ 7,018 63 -- 7,081 6.51 U.S. government agencies............................ 3,940 -- (16) 3,924 4.83 ------- --- ---- ------ 10,958 63 (16) 11,005 5.90 ------- --- ---- ------ Total........................................... $74,243 155 (102) 74,296 5.73 ======= === ==== ====== ==== December 31, 1994: Available for sale: U.S. Treasury securities............................ $ 3,146 -- (108) 3,038 4.76% U.S. government agencies............................ 11,096 9 (416) 10,689 6.27 ======= === ==== ====== 14,242 9 (524) 13,727 5.94 Held to maturity: U.S. Treasury agencies.............................. 3,963 -- (148) 3,815 5.22 ======= === ==== ====== Total........................................... $18,205 9 (672) 17,542 5.78
The amortized cost and estimated fair value of investment securities by contractual maturity at December 31, 1995 are summarized below. Maturities of mortgage-backed securities are classified in accordance with contractual repayment schedules. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
AVAILABLE FOR SALE HELD TO MATURITY ------------------------------ ------------------------------ AMORTIZED FAIR AMORTIZED FAIR COST VALUE YIELD COST VALUE YIELD --------- ----- ----- --------- ----- ----- (DOLLAR EXPRESSED IN THOUSANDS) Maturing within one year: U.S. Treasury securities...................... $10,034 10,050 6.02% $ 7,018 7,081 6.51% U.S. government agencies...................... 48,703 48,707 5.67 2,005 2,005 4.70 -------- ------ ------- ------ Total maturing within one year............ 58,737 58,757 5.73 9,023 9,086 6.11 Maturing from one to five years: U.S. government agencies...................... 4,548 4,534 5.29 1,935 1,919 4.97 -------- ------ ------- ------ Total..................................... $63,285 63,291 5.70 $10,958 11,005 5.91 ======== ====== ======= ====== ====
Proceeds from the sale of a debt security classified as available for sale during 1995 were $1.06 million, resulting in a gain of $3,000. There were no sales of securities for the years ended December 31, 1994 and 1993. F-50 143 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Investment securities with a carrying value of $18.9 million and $17.2 million at December 31, 1995 and 1994, respectively, were pledged to secure U.S. government and other public deposits and for other purposes required or permitted by law. (5) LOANS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES The changes to the allowance for possible loan losses for the years ended December 31 were as follows:
1995 1994 1993 ---- ---- --- (DOLLARS EXPRESSED IN THOUSANDS) Balance, January 1..................................................................... $ 7,437 7,337 5,484 ------- ------- ------ Loans charged-off...................................................................... (6,270) (10,023) (6,509) Recoveries of loans previously charged-off............................................. 363 314 262 ------- ------- ------ Net loans charged-off.............................................................. (5,907) (9,709) (6,247) ------- ------- ------ Provision charged to operations........................................................ 3,885 9,809 8,100 Reduction in allowance for possible loan losses from sale of loans..................... (27) -- -- ------- ------- ------ Balance, December 31................................................................... $ 5,388 7,437 7,337 ======= ======= ======
Nonaccruing loans aggregated $4.00 million and $11.43 million at December 31, 1995 and 1994, respectively. At December 31, 1995, the recorded investment in loans considered impaired was $4.53 million, representing loans on nonaccrual status and restructured loans. The impaired loans had no valuation reserves at December 31, 1995. The average recorded investment in impaired loans, since the adoption of SFAS 114 and SFAS 118 on January 1, 1995, was $8.5 million. The interest income related disclosures, including the amount of interest that would have been recorded under the original terms of impaired loans and the amount of income received, were not available. Such information was not practicable to obtain due to the discontinuance of FCB's former data processing system in December 1995. (6) LEASE FINANCING FCB has an equity participation in a leveraged lease agreement. Under the terms of the agreement, FCB's equity investment represents approximately 35% of the cost of the leased equipment. The remaining 65% is provided by a third party through long-term debt which provides no recourse against FCB and is secured by first liens on the leased equipment. FCB's net investment in the leveraged lease at December 31 was as follows:
1995 1994 ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Lease rental receivable..................................................... $641 695 Estimated residual value.................................................... 378 378 Less unearned and deferred income........................................... (28) (35) ---- ----- Investment in leverage leases............................................... $991 1,038 ==== =====
The net income from FCB's investment in the leveraged lease was $7,100 for each of the years ended December 31, 1995, 1994 and 1993. F-51 144 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (7) BANK PREMISES AND EQUIPMENT Bank premises and equipment were comprised of the following at December 31:
1995 1994 ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Buildings....................................................................... $ 616 616 Land and land improvements...................................................... 894 894 Leasehold improvements.......................................................... 1,801 1,485 Furniture, fixtures, and equipment.............................................. 4,520 4,669 ------ ----- 7,831 7,664 Less accumulated depreciation and amortization.................................. 5,584 5,027 ------ ----- Bank premises and equipment, net............................................ $2,247 2,637 ====== =====
Depreciation and amortization expense was $695,000, $667,000 and $875,000 for the years ended December 31, 1995, 1994 and 1993, respectively. At December 31, 1995, the approximate minimum future lease rentals payable under noncancellable operating leases for bank premises were as follows:
(DOLLARS EXPRESSED IN THOUSANDS) 1996............................................. $ 563 1997............................................. 395 1998............................................. 265 1999............................................. 233 2000............................................. 236 Thereafter....................................... 95 ------ Total minimum lease payments................. $1,787 ======
The net rental expense included in occupancy expense for bank premises was $965,000, $871,000 and $844,000 for the years ended December 31, 1995, 1994 and 1993, respectively. Rental income under noncancellable subleases was $114,000, $99,000 and $99,000 for the years ended December 31, 1995, 1994 and 1993, respectively. At December 31, 1995, these subleases extend through 1998 and future minimum rental income is $105,000, $99,000 and $25,000 for 1996, 1997 and 1998, respectively. (8) INCOME TAXES FCB and the Bank filed a consolidated federal income tax return for the period prior to their respective acquisitions by First Banks. Because of the structure of the transaction described in Note 2 to the consolidated financial statements, current regulations of the Internal Revenue Code prohibit FCB and the Bank from continuing to file a consolidated income tax return for the period after August 23, 1995, because the acquisition by First Banks of the Bank stock caused its disaffiliation with FCB. However, subsequent to the exchange of Bank stock and the acquisition of additional FCB stock by First Banks, both FCB and the Bank will file a consolidated federal income tax return with First Banks for the periods First Banks owned greater than 80% of the respective entities. As more fully discussed in Note 19, should the stock rights offering cause First Banks' ownership percentage to fall below 80%, FCB and the Bank would be disaffiliated from First Banks, and neither FCB nor the Bank would be permitted to be included in the consolidated return of First Banks for five years. In addition, the Bank, which was disaffiliated from FCB on August 22, 1995, would not be permitted to file a consolidated return with FCB for five years. However, regulations do provide procedures for FCB to request permission from the Internal Revenue Service to join in filing a F-52 145 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) consolidated return with the Bank. FCB would need to request a waiver from the Internal Revenue Service in the form of a private letter ruling, prior to the due date of the consolidated return, in order to file a consolidated federal return with the bank. This is not an automatic reaffiliation. Provision (benefit) for income taxes consists of:
YEARS ENDED DECEMBER 31, ------------------------------- 1995 1994 1993 ---- ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Current income taxes: Federal................................................. $ (101) -- (2,677) State................................................... -- -- -- ------- ------ ------ (101) -- (2,677) ------- ------ ------ Deferred income tax expense (benefit): Federal................................................. 5,386 (4,761) (1,090) State................................................... 695 (1,736) -- ------- ------ ------ 6,081 (6,497) (1,090) ------- ------ ------ Valuation allowance......................................... (6,081) 8,904 -- ------- ------ ------ Total............................................... $ (101) 2,407 (3,767) ======= ====== ======
The effective federal income tax rates differ from amounts which would be calculated using statutory tax rates as follows:
YEARS ENDED DECEMBER 31, --------------------------------------------------------------- 1995 1994 1993 ----------------- ----------------- ----------------- % OF % OF % OF PRETAX PRETAX PRETAX AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME ------ ------ ------ ------ ------ ------ (DOLLARS EXPRESSED IN THOUSANDS) Loss before provision (benefit) for income taxes............... $(7,532) $(15,783) $(11,078) ======= ======== ======== Taxes on loss calculated at statutory rates.................... (2,636) (35.0)% (5,366) (34.0)% (3,767) (34.0)% Effects of differences in tax reporting: Change in the deferred tax valuation allowance............. (6,081) (80.7) 8,904 56.4 -- -- Change in tax attributes available to be carried forward... 8,616 114.4 -- -- -- -- State income taxes......................................... -- -- (1,131) (7.2) -- -- ------- ----- -------- ----- -------- ----- Provision (benefit) for income taxes................... $ (101) (1.3)% $ 2,407 15.2% $ (3,767) (34.0)% ======= ===== ======== ===== ======== =====
F-53 146 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities for periods after the adoption of SFAS 109 are shown below.
DECEMBER 31, ------------------ 1995 1994 ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Deferred tax assets: Allowance for possible loan losses................................................................. $ 1,648 1,377 Other real estate.................................................................................. 654 2,981 AMT tax credit carryforwards....................................................................... 448 435 Depreciation on bank premises and equipment........................................................ 145 83 Other.............................................................................................. 23 -- Net operating loss carryforwards (federal and state)............................................... 382 4,346 ------- ------ Total gross deferred tax assets................................................................ 3,300 9,222 Less valuation allowance........................................................................... (2,823) (8,904) ------- ------ Gross deferred tax assets, net of valuation allowance.......................................... 477 318 ------- ------ Deferred tax liabilities: Leveraged leases................................................................................... 203 268 Accretion.......................................................................................... 10 50 State taxes........................................................................................ 264 -- ------- ------ Total gross deferred tax liabilities....................................................... 477 318 ------- ------ Net deferred tax assets.................................................................... $ -- -- ======= ======
With the completion of the 1995 acquisitions of FCB and the Bank by First Banks, the federal and state net operating loss (NOL) carryforwards generated prior to the two transactions are subject to an annual limitation under Internal Revenue Code (IRC) Section 382 and California Revenue and Taxation Code Section 24451, respectively, for all subsequent tax years. The federal and state annual limitations for the Bank are $28,598. The following schedules reflect the NOL carryforwards that will be available, after consideration of these limitations, to offset future taxable income. If taxable income for a post-transaction year does not equal or exceed the annual limitation, the unused limitation is carried forward to increase the limitation amount for the succeeding years until the excess limitation is utilized. This does not affect the original expiration dates of the NOL. Also acquired in the acquisitions are alternative minimum tax credits of $448,000. These credits are also subject to annual limitations. For federal income tax purposes, FCB had NOL carryforwards of approximately $988,000. The NOL carryforwards expire as follows:
(DOLLARS EXPRESSED IN THOUSANDS) Year ending December 31: 2008......................................... $479 2009......................................... 509 ---- $988 ====
F-54 147 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) For California income tax purposes, FCB had NOL carryforwards of approximately $353,000. The NOL carryforwards expire as follows:
(DOLLARS EXPRESSED IN THOUSANDS) Year ending December 31: 1996........................................................................... $ 89 1997........................................................................... 88 1998........................................................................... 88 1999........................................................................... 88 ---- $353 ====
Subsequent to the acquisition by First Banks, the net deferred tax assets of FCB were evaluated to determine whether it is more likely than not that the deferred tax assets will be recognized in the future. Due to the uncertainty of future operating results and possible disaffiliation with respect to filing a consolidated federal income tax return with First Banks, as previously discussed, it was determined that the valuation allowance established for FCB should wholly offset any net deferred tax asset. Changes to the deferred tax assets valuation allowance are as follows:
YEARS ENDED DECEMBER 31, ----------------- 1995 1994 ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Balance, beginning of year.................................................... $ 8,904 -- Current year deferred provision, change in deferred tax valuation allowance... (6,081) 8,904 ------- ----- Balance, end of year.......................................................... $ 2,823 8,904 ======= =====
(9) 12% CONVERTIBLE DEBENTURES Pursuant to the Stock Purchase Agreement discussed in Note 2 to the accompanying consolidated financial statements, FCB issued to First Banks two 5-year, 12% convertible debentures in exchange for a total of $6.5 million. The principal and any accrued but unpaid interest thereon is convertible at any time prior to maturity, at the option of First Banks, into FCB common stock at $.10 per share. At maturity, any unpaid principal and accrued interest will be converted into FCB common stock at $.10 per share. The initial debenture of $1.5 million was issued on October 31, 1995 and matures on October 31, 2000. The second debenture was issued on December 28, 1995 and matures on December 28, 2000. Cash may be paid with respect to either the principal or interest on the debentures only when, in the sole and absolute discretion of the Board of Directors of FCB, it is determined that FCB has sufficient funds to make such payment in accordance with all applicable regulatory requirements. The debentures are secured by all of the shares of Bank common stock held by FCB. Accrued and unpaid interest on the debentures was $37,667 at December 31, 1995. At that date, the principal and accrued interest on the debentures could have been converted into an aggregate of 65,376,670 shares of FCB common stock. (10) COMMITMENTS AND CONTINGENT LIABILITIES OFF-BALANCE SHEET FINANCIAL INSTRUMENTS In the ordinary course of business, FCB enters into various types of transactions which involve financial instruments with off-balance-sheet risk. These instruments include commitments to extend credit and letters of credit F-55 148 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) and are not reflected in the accompanying consolidated balance sheets. These financial transactions carry various degrees of credit risk. Credit risk is defined as the possibility that a loss may occur from the failure of another party to perform according to the terms of the contract. FCB's loans, and related credit risks, are primarily concentrated in Northern California. The cities and surrounding metropolitan areas where the majority of FCB's loan customers reside are Sacramento, Roseville, San Francisco, Concord, and Campbell, California. Economic fluctuations in the California regions of the Sacramento Valley and San Francisco Bay Area have had, and will continue to have, a direct impact on the credit risk of the Company. Commitments to extend credit are legally binding loan commitments, subject to certain conditions, with set expiration dates. FCB typically receives a fee for providing a commitment. FCB evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by FCB upon the extension of credit, is based on management's evaluation. Collateral held varies, but may include cash, marketable securities, accounts receivable, inventory, equipment and real estate property. Standby letters of credit are provided to customers to guarantee their performance, generally in the production of goods and services or under contractual commitments in the financial markets. Commercial letters of credit are issued to customers to facilitate trade transactions. They represent a substitution of FCB's credit for the customer's credit. The contractual amounts of commitments to extend credit and standby letters of credit represent the amount of credit risk. Since many of the commitments and letters of credit are expected to expire without being fully drawn, the contractual amounts do not necessarily represent future cash requirements. The following is a summary of financial instruments with off-balance-sheet risk at December 31, 1995 and 1994:
1995 1994 ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Commitments to extend credit................................................. $22,578 41,504 Standby letters of credit.................................................... 2,078 3,329 ======= ======
Real estate construction loan commitments were $637,000 and $3.43 million at December 31, 1995 and 1994, respectively, and are included in commitments to extend credit in the schedule above. LITIGATION FCB is involved in various routine legal actions as both plaintiff and defendant. In the opinion of management, based upon the present status of litigation and the advice of legal counsel, the ultimate resolution of any of these matters will not have a material adverse impact on the financial position of FCB. (11) DIVIDENDS The stockholders of FCB will be entitled to receive dividends, when and as declared by the Board of Directors, out of funds legally available, subject to the dividends preference, if any, on preferred shares that may be outstanding and also subject to the restrictions of the Delaware General Corporation Law. At December 31, 1995 and 1994, there were no outstanding shares of preferred stock. On December 31, 1991, the Board of Directors of FCB declared a $.32 per share cash dividend on its common stock. This dividend was payable in four installments during 1992. On July 9, 1992, the Company made the decision to suspend payment of the third and fourth quarter dividends which totaled $.16 per share. FCB will continue to accrue interest on these suspended dividends at the current legal rate until such time as the dividends are paid to stockholders of record as of June 15, 1992 and September 14, 1992. As of December 31, 1995, the aggregate accrued dividends and accrued but unpaid interest thereon was approximately $969,000. The payment of the accrued F-56 149 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) dividends and declaration of subsequent dividends is subject to approval by the Federal Reserve Bank of San Francisco (see Note 15). In connection with its offering to stockholders commenced subsequent to December 31, 1995, as described in Note 19, FCB is offering, to those individuals eligible to receive the accrued and unpaid 1992 dividends, one share of FCB common stock for each $.10 of dividends and accrued interest, in satisfaction of that obligation. Dividends by the Bank to FCB are restricted under California law to the lesser of the Bank's retained earnings or the Bank's net income for the latest three fiscal years, less dividends previously declared during that period, or, with the approval of the California Superintendent of Banks, to the greater of the retained earnings of the Bank, the net income of the Bank for its last fiscal year or the net income of the Bank for its current fiscal year. In addition, the Federal Reserve Board and the Federal Deposit Insurance Corporation (FDIC) have indicated that it would generally be considered to be an unsafe and unsound banking practice for banks to pay dividends except out of current operating earnings. Further, FCB and the Bank are restricted from paying dividends under the terms of certain regulatory agreements (see Note 15). During 1995, 1994 and 1993, the Bank paid no dividends to FCB. As of December 31, 1995, the retained deficit of the Bank was approximately $30.31 million. (12) STOCK OPTION PLANS In 1987, the Board of Directors amended and restated the Company's employee stock option plan (the Employee Plan) for full-time salaried officers and employees who have substantial responsibility for the successful operation of FCB and the Bank. The Employee Plan provides for the grant of ``incentive stock options,'' as defined in Section 422A of the Internal Revenue Code. The Employee Plan reserved an aggregate of 783,000 shares of FCB common stock. Options may be granted at an exercise price not less than the fair market value of the stock at the date of grant and vest at a rate of 20% per year for a period of five years from date of grant. Options expire ten years from date of grant and may be exercised with shares of FCB stock or other valuable consideration. Options may be granted, pursuant to the Employee Plan, until its expiration on March 11, 1997. The Employee Plan is administered by the Board of Directors or a committee appointed by the Board (in either case, the ``Committee''). The Committee determines to whom options will be granted and the terms of each option granted, including the exercise price, number of shares subject to the option, the vesting provisions thereof, and whether the option will be an incentive or nonstatutory option. F-57 150 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Activity for the three years ended December 31, 1995 related to the Employee Plan was as follows:
OPTIONS OUTSTANDING SHARES ---------------------- AVAILABLE PRICE PER FOR GRANT SHARES SHARE --------- ------ --------- Balance, January 1, 1993.............................. 119,552 523,700 $4.38-11.12 Options granted....................................... (15,000) 15,000 4.00-5.88 Options cancelled..................................... 25,500 (25,500) 6.13-10.75 Options exercised..................................... -- (2,000) 5.63 ------- -------- ----------- Balance, December 31, 1993............................ 130,052 511,200 4.00-11.12 Options granted....................................... (3,500) 3,500 4.25-5.38 Options cancelled..................................... 328,900 (328,900) 4.00-11.12 Options exercised -- -- -- ------- -------- ----------- Balance, December 31, 1994 455,452 185,800 4.25-11.12 Options granted -- -- -- Options cancelled..................................... 90,500 (90,500) 5.00-8.44 Options exercised -- -- -- ------- -------- ----------- Balance, December 31, 1995............................ 545,952 95,300 4.25-11.12 ======= ======== ===========
At December 31, 1995, options for 82,140 shares were exercisable at prices ranging from $4.25 to $11.12. On August 22, 1989, the Board of Directors amended the Employee Plan to provide that in the event of a sale, dissolution or liquidation, merger or consolidation in which FCB is not the surviving corporation (other than a merger or consolidation solely for the purpose of charter migration), an optionee shall have the right immediately preceding any such transaction, to exercise any unvested and unexercised portion of said optionee's options. Although the transactions with First Banks pursuant to the Stock Purchase Agreement provided optionees this right, the exercise prices on options currently outstanding are substantially in excess of market prices. Consequently, no options were exercised as a result of those transactions. On September 26, 1989 (Commencement Date), the Board of Directors of FCB adopted the First Commercial Bancorp, Inc., Directors' Stock Option Plan (Directors' Plan), which was approved by the stockholders of FCB at its Annual Stockholders' Meeting held on May 23, 1990. There are presently reserved for issuance under the Directors' Plan 250,000 shares of FCB's common stock. Only non-employee directors of FCB are eligible to receive options in accordance with the Directors' Plan. As of December 31, 1995, only two directors are eligible to participate in the Directors' Plan. One present director of FCB received a onetime grant of a nonstatutory option to purchase 10,000 shares, which became exercisable upon approval by the stockholders, service as a Board member for at least six months, and satisfaction of certain vesting requirements set forth below. On each anniversary date of the Commencement Date, each director who has been a director continuously for the preceding year and who has not previously received one or more grants of options to purchase a total of 10,000 shares, will receive a grant of an option to purchase 2,000 shares. The maximum number of shares for which options may be granted under the Directors' Plan to any director is 10,000 shares. Options granted to directors to purchase common stock of FCB shall vest and become exercisable at the rate of 20% of the shares per year from the exercise date and may be exercised by the optionee during a period of 10 years. The Directors' Plan will expire on September 26, 1998, unless terminated earlier by the Board of Directors. At December 31, 1995, options for 70,000 vested shares under the Directors' Plan were exercisable at a price of $11.12 per share. F-58 151 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (13) EMPLOYEE BENEFIT PLANS FCB's profit-sharing plan is a self-administered savings and incentive plan, which qualifies under Section 401(k) of the Internal Revenue Code, covering substantially all employees. Under the plan, employer matching contributions are determined annually by FCB's Board of Directors. An employee's interest in such contributions vest on a 5-year schedule according to years of service rendered. Employee contributions are limited to 15% of an employee's compensation, not to exceed $9,500 for 1995, and vest immediately. The employer matching contributions were suspended as of January 1, 1995. Total employer contributions under the plan were $105,000 and $116,000 for the years ended December 31, 1994 and 1993, respectively. For these same three years, the Bank paid for the plan's administrative, accounting and legal expenses of approximately $16,000, $20,000 and $33,000, respectively. FCB adopted an Employee Stock Ownership Plan (ESOP) for all eligible employees. Under the terms of the ESOP, the amount of contributions made is within the sole discretion of the Board of Directors. Employees may not contribute to the ESOP. Contributions to the ESOP are allocated among eligible employees' accounts in relation to their compensation as shares of stock of FCB are acquired and vest over a period specified in the ESOP. Any shares held by the ESOP are distributed to employees following death, disability, retirement or other separation from employment in accordance with the terms of the ESOP. There were no contributions to the ESOP for the years ended December 31, 1995, 1994 and 1993. Postretirement benefits other than pensions and postemployment benefits are generally not provided for FCB's employees. (14) FAIR VALUE OF FINANCIAL INSTRUMENTS Fair values for financial instruments are management's estimate of the values at which the instruments could be exchanged in a transaction between willing parties. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including, deferred tax assets and bank premises and equipment. Further, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on the fair value estimates and have not been considered in any of the estimates. The estimated fair values of FCB's financial instruments at December 31 were as follows:
DECEMBER 31, 1995 DECEMBER 31, 1994 ---------------------- ---------------------- ESTIMATED ESTIMATED CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- --------- -------- --------- (DOLLARS EXPRESSED IN THOUSANDS) Assets: Cash and cash equivalents..................... $18,768 18,768 86,259 86,259 Interest-bearing deposits with other financial institutions with original maturities over three months................................ -- -- 299 299 Investment securities......................... 74,249 74,296 17,690 17,541 Loans, net.................................... 68,627 68,681 122,735 116,315 Lease financing, net.......................... 991 991 1,038 1,038 Accrued interest receivable................... 1,429 1,429 1,287 1,287 Liabilities: Demand and savings deposits................... 83,870 83,870 147,018 147,018 Time deposits................................. 72,294 72,371 86,518 86,769 12% convertible debentures.................... 6,500 6,500 -- -- Accrued interest payable...................... 487 487 335 335 Off balance sheet--unfunded loan commitments...... -- -- -- --
F-59 152 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following methods and assumptions were used in estimating fair values for financial instruments: FINANCIAL ASSETS: Cash and cash equivalents, interest-bearing deposits, lease financing and accrued interest receivable: The carrying values reported in the consolidated balance sheets approximate fair value. Investment securities: Fair value for investment securities is based upon quoted market prices. If quoted market prices are not available, fair values are based upon quoted market prices of comparable instruments. Net loans: The fair values for most loans held for investment are estimated utilizing discounted cash flow calculations that apply interest rates currently being offered for similar loans to borrowers with similar risk profiles. The carrying values for loans are net of the allowance for possible loan losses and unearned discount. FINANCIAL LIABILITIES: Deposits: The fair value disclosed for deposits generally payable on demand (i.e., non-interest-bearing and interest-bearing demand, savings and money market accounts) are considered equal to their respective carrying amounts as reported in the consolidated balance sheets. The fair value disclosed for demand deposits does not include the benefit that results from the low-cost funding provided by deposit liabilities compared to the cost of borrowing funds in the market. Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on similar certificates to a schedule of aggregated monthly maturities of time deposits. Convertible debentures and accrued interest payable: The carrying value reported in the consolidated balance sheets approximates fair value. OFF-BALANCE SHEET: Credit commitments: The majority of the commitments to extend credit and commercial and standby letters of credit contain variable interest rates and credit deterioration clauses and, therefore, the carrying value of these credit commitments approximates fair value. (15) REGULATORY AGREEMENTS For each of the three years ended December 31, 1995, FCB has incurred substantial losses from operations. These losses were associated primarily with the emphasis which FCB had placed on real estate based lending and the deterioration of the California economy during that period, particularly as it related to the real estate sector. Because of the magnitude of problem assets which arose and the reduction of FCB's capital due to the losses, FCB has been operating under the terms of a Memorandum of Understanding with the Federal Reserve Bank of San Francisco (MOU) and the Bank has been operating under the terms of a Cease and Desist Order issued by the FDIC, a Final Order issued by the State Banking Department and several Capital Impairment Orders (collectively the Orders). The MOU and the Orders have placed significant restrictions on FCB and the Bank including restrictions on the payment of dividends, requirements of specified capital levels and reduction of classified assets. As a result of the recapitalization and numerous actions taken by FCB, management believes FCB is in substantial compliance with the MOU and the Orders. However, full compliance, particularly with certain capital requirements, has not yet been achieved. FCB and the Bank entered into a Stock Purchase Agreement with First Banks and James F. Dierberg as outlined in Note 2, which resulted in a substantial recapitalization of FCB and the Bank during 1995. In addition, as more fully described in Note 19, subsequent to December 31, 1995, FCB has commenced an offering of its common stock to existing stockholders in exchange for dividends owed to certain stockholders. However, FCB has continued to incur losses from operations through December 31, 1995. Furthermore, the effect of a large portfolio of problem assets and the potential of a substantial interest cost associated with the Debenture issued to First Banks under the Stock F-60 153 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Purchase Agreement may impair FCB's ability to generate sufficient future profitability to satisfy all of FCB's regulatory agreements. Consequently, there can be no assurance that: (1) FCB will not incur substantial additional losses in the liquidation of its portfolio of problem assets; (2) continued losses will not adversely effect FCB's ability to comply with the requirement of the MOU and the Orders; or (3) because of any of the preceding, FCB and the Bank may not be required to raise additional capital or have additional regulatory agreements imposed upon it in the future. (16) RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS During the second quarter of 1994, FCB became aware of the existence of certain previously unknown information which affected the reported carrying value of certain assets included in FCB's December 31, 1993 and 1992 financial statements. FCB believes that had this information been known at December 31, 1992, FCB would have written off certain assets and recognized a loss at that time. Thus, FCB's financial statements for the fiscal years ended December 31, 1993 and 1992 have been restated to reflect the effects of these charge-offs and losses. The effect of this restatement for 1994 was to decrease ORE by $3.90 million, increase the allowance for possible loan losses by $974,000 for a charge-off recorded in 1993, decrease interest income by $14,000, record a tax benefit of $5,000, increase cash by $47,000 and increase savings accounts by $96,000. The net of these transactions increased previously reported loss and retained deficit by $9,000. The effect of this restatement for 1992 was to charge-off real estate construction loans of $4.89 million to the allowance for possible loan losses and establish a corresponding addition to the provision for possible loan losses. In addition, interest income was reversed by $18,000 and a tax benefit was recorded for $1.72 million. The net of these transactions increased previously reported net loss and retained deficit in 1992 by $3.19 million. (17) TRANSACTIONS WITH FIRST BANKS In October 1995, the Board of Directors of the Bank approved a management services agreement with First Banks and a cost sharing agreement with First Bank & Trust, Irvine, California, a wholly owned subsidiary of First Banks. The management fee agreement provides that the Bank will compensate First Banks on an hourly basis for its use of personnel for various functions including internal auditing, loan review, income tax preparation and assistance, accounting and other management and administrative services. Hourly rates for such services compare favorably with those of similar services from unrelated sources, as well as the internal costs of the Bank personnel which were used previously. It is estimated that the aggregate cost for such services will be more economical than those previously incurred separately by the Bank. Because of this affiliation through First Banks and the geographic proximity of certain of these banking offices, the Bank and First Bank & Trust plan to share the cost of certain personnel and services which will be used by both banks. This will include the salaries and benefits of certain loan and administrative personnel. The banks have entered into a cost sharing agreement for the purpose of allocating these expenses between them. Expenses associated with loan origination personnel will be allocated based on the relative loan volume between the banks. Costs of most other personnel will be allocated on an hourly basis. Because this involves distributing essentially fixed costs over a larger asset base, it allows each bank to receive the benefit of personnel and services at a reduced cost. The Bank also entered into a data processing agreement with FirstServ, Inc., a wholly owned data processing subsidiary of First Banks, on December 8, 1995. Under this agreement, FirstServ, Inc. began providing data processing and item processing to the Bank in December 1995. The fees for such services are substantially less than the Bank had incurred in connection with its previous data processing operation or than it would incur with non-affiliated vendors. The management services agreement, cost sharing agreement and data processing agreement are subject to the review and approval of the Bank's regulatory authorities. Fees paid by the Bank under any of these agreements totaled $99,000 for the year ended December 31, 1995. F-61 154 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In addition, the Bank may purchase certain services and supplies from or through First Banks as one of its subsidiaries. This would include insurance policies, office supplies and other commonly used banking products which can be acquired more economically than had previously been possible for the Bank separately. These items are purchased on a cost pass-through basis and the amount of such purchases is not expected to be material to FCB's consolidated financial position or results of operations. In connection with the recapitalization of FCB, and as more fully discussed in Notes 2 and 9 to the accompanying consolidated financial statements, First Banks purchased convertible debentures of FCB of $1.5 million and $5.0 million on October 31, 1995 and December 28, 1995, respectively. The related interest expense for these debentures was $37,667 for the year ended December 31, 1995. (18) PARENT COMPANY ONLY FINANCIAL STATEMENTS CONDENSED BALANCE SHEETS
DECEMBER 31, ------------------- 1995 1994 ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Assets: Cash.................................................... $ 200 22 Investment in First Commercial Bank..................... 10,987 5,219 Other assets............................................ 413 -- ------- ----- Total assets........................................ $11,600 5,241 ======= ===== Liabilities and stockholders' equity: Dividends payable....................................... $ 748 748 12% convertible debentures.............................. 6,500 -- Accrued expenses and other liabilities.................. 773 138 ------- ----- Total liabilities................................... 8,021 886 Stockholders' equity.................................... 3,579 4,355 ------- ----- Total liabilities and stockholders' equity.......... $11,600 5,241 ======= =====
F-62 155 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONDENSED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, ---------------------------- 1995 1994 1993 ---- ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Income: Interest income............................... $ 1 95 224 Other income.................................. -- -- 1 ------- ------- ------ Total income.............................. 1 95 225 ------- ------- ------ Expense: Management fee................................ -- 56 14 Other......................................... 716 1,182 591 ------- ------- ------ Total expense............................. 716 1,238 605 ------- ------- ------ Loss before income tax expense (benefit) and equity in undistributed loss of subsidiary.............................. (715) (1,143) (380) Income tax expense (benefit)...................... 4 (9) (108) ------- ------- ------ Loss before equity in undistributed loss of subsidiary........................... (719) (1,134) (272) Equity in undistributed loss of subsidiary........ (6,712) (17,056) (7,039) ------- ------- ------ Net loss.................................. $(7,431) (18,190) (7,311) ======= ======= ======
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ---------------------------- 1995 1994 1993 ---- ---- ---- (DOLLARS EXPRESSED IN THOUSANDS) Cash flows from operating activities: Net loss...................................... $(7,431) (18,190) (7,311) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization............. -- 1,047 73 Equity in undistributed loss of subsidiary.............................. 6,712 17,056 7,039 (Increase) decrease in other assets....... (46) 308 (118) Increase in liabilities................... 351 33 97 ------- ------- ------ Net cash (used in) provided by operating activities................ (414) 254 (220) ------- ------- ------ Cash flows from investing activities--contributions to subsidiary......... (7,325) (1,404) -- ------- ------- ------ Cash flows from financing activities: Proceeds from issuance of common stock........ 1,500 -- 11 Proceeds from issuance of debentures.......... 6,133 -- -- Proceeds from advances from subsidiary........ 284 -- -- ------- ------- ------ Net cash provided by financing activities.......................... 7,917 -- 11 ------- ------- ------ Net increase (decrease) in cash and cash equivalents.................... 178 (1,150) (209) Cash and cash equivalents at beginning of year.... 22 1,172 1,381 ------- ------- ------ Cash and cash equivalents at end of year.......... $ 200 22 1,172 ======= ======= ====== Noncash financing activities--exchange of Company common stock for Bank common stock (see Note 2).............................................. $ 6,500 -- -- ======= ======= ======
F-63 156 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (19) SUBSEQUENT EVENTS In January 1996, FCB filed an Amended Registration Statement with the Securities and Exchange Commission for a rights offering to its existing stockholders other than First Banks, of an aggregate of $5.0 million of newly-issued common stock at $.10 per share. A maximum of $1.0 million of this, if not otherwise subscribed to, may be offered to individuals who are not stockholders of FCB. In addition, $969,000 of common stock is being offered in exchange for certain outstanding dividend obligations and accrued interest thereon of FCB. If this offering is fully subscribed, the capital of FCB and the Bank would exceed regulatory requirements. In addition, First Banks' ownership in FCB would be reduced to 50.25%, prior to the conversion of the debentures, or 66.95%, if the debentures are immediately converted. First Banks has agreed, pursuant to the Stock Purchase Agreement, that it will purchase on the offering as a standby-purchaser, after the expiration of the rights offering and dividend exchange offer, if necessary, such number of shares as may be required to raise the Bank's Tier 1 capital ratio to 7.00% as required by the SBD's capital impairment order. The offering was declared effective by the Securities and Exchange Commission on February 16, 1996, and the Prospectuses were recently mailed to eligible stockholders. (20) INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) The following unaudited interim consolidated financial statements include the accounts of FCB and its subsidiary, the Bank, after elimination of material intercompany transactions. The unaudited information, in the opinion of FCB, includes all adjustments necessary for the fair presentation thereof. All adjustments made were of a normal and recurring nature. F-64 157 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ ASSETS Cash and cash equivalents: Cash and due from banks................................. $ 8,069 9,768 Federal funds sold...................................... 9,100 9,000 -------- ------- Total cash and cash equivalents................. 17,169 18,768 -------- ------- Investment securities: Available for sale, at fair value....................... 33,269 63,291 Held to maturity, at amortized cost (estimated fair value of $3,012 and $11,005 at September 30, 1996 and December 31, 1995, respectively)...................... 3,004 10,958 -------- ------- Total investment securities..................... 36,273 74,249 -------- ------- Loans: Commercial.............................................. 30,738 33,764 Real estate construction and development................ 10,666 4,094 Real estate mortgage: Residential......................................... 19,720 17,824 Commercial.......................................... 23,015 15,021 Consumer and installment................................ 10,465 3,508 -------- ------- Total loans..................................... 94,604 74,211 Unearned discount....................................... (305) (196) Allowance for possible loan losses...................... (4,037) (5,388) -------- ------- Net loans....................................... 90,262 68,627 -------- ------- Lease receivable, net....................................... -- 991 Bank premises and equipment, net of accumulated depreciation.............................................. 2,000 2,247 Accrued interest receivable................................. 1,377 1,429 Other real estate owned..................................... 524 1,380 Other assets................................................ 1,375 1,844 -------- ------- Total assets.................................... $148,980 169,535 ======== =======
F-65 158 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED)
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ LIABILITIES Deposits: Demand: Non-interest bearing................................ $ 24,381 27,517 Interest bearing.................................... 16,660 19,367 Savings................................................. 32,821 36,986 Time: Time deposits of $100 or more....................... 10,837 18,764 Other time deposits................................. 48,957 53,530 -------- ------- Total deposits.................................. 133,656 156,164 Accrued interest payable.................................... 812 487 Accrued and other liabilities............................... 2,063 2,805 12% convertible debentures.................................. 6,500 6,500 -------- ------- Total liabilities............................... 143,031 165,956 -------- ------- STOCKHOLDERS' EQUITY Preferred stock, $.01 par value, 5,000,000 shares authorized; no shares issued and outstanding Common stock, $.01 par value, 250,000,000 shares authorized; 105,765,932 shares issued and outstanding at September 30, 1996 and 69,675,110 shares issued and outstanding at December 31, 1995......................................... 1,058 697 Capital surplus............................................. 36,107 33,251 Retained deficit............................................ (31,185) (30,311) Net fair value adjustment for securities available for sale...................................................... (31) (58) -------- ------- Total stockholders' equity...................... 5,949 3,579 -------- ------- Total liabilities and stockholders' equity...... $148,980 169,535 ======== =======
F-66 159 FIRST COMMERCIAL BANCORP, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (DOLLARS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED SEPTEMBER 30, ----------------- 1996 1995 ---- ---- Interest income: Interest and fees on loans.............................. $ 6,147 7,792 Investment securities................................... 2,248 1,180 Federal funds sold and other............................ 390 1,679 ------- ------ Total interest income........................... 8,785 10,651 ------- ------ Interest expense: Deposits: Interest-bearing demand............................. 211 297 Savings............................................. 1,086 892 Time deposits of $100 or more....................... 492 818 Other time deposits................................. 1,743 2,546 Other borrowings........................................ 677 86 ------- ------ Total interest expense.......................... 4,209 4,639 ------- ------ Net interest income............................. 4,576 6,012 Provision for possible loan losses.......................... 1,150 3,345 ------- ------ Net interest income after provision for possible loan losses................................... 3,426 2,667 ------- ------ Noninterest income: Service charges on deposit accounts and customer service fees................................................... 581 639 Other income............................................ 921 492 ------- ------ Total noninterest income........................ 1,502 1,131 ------- ------ Noninterest expense: Salaries and employee benefits.......................... 1,705 3,916 Occupancy, net of rental income......................... 668 1,318 Furniture and equipment................................. 309 483 Federal Deposit Insurance Corporation premiums.......... 281 498 Postage, printing and supplies.......................... 440 195 Data processing fees.................................... 304 61 Legal, examination and professional fees................ 1,153 793 Losses and expenses on foreclosed real estate, net of gains.................................................. 952 2,410 Other expenses.......................................... 722 1,143 ------- ------ Total noninterest expense....................... 6,534 10,097 ------- ------ Income (loss) before benefit (provision) for income taxes.................................. (1,606) (6,299) Provision (benefit) for income taxes........................ (732) 2 ------- ------ Net income (loss)............................... $ (874) (6,301) ======= ====== Income (loss) per common shares............................. (0.01) (1.35) ======= ====== Weighted average shares of common stock and common stock equivalents outstanding (in thousands).................... 87,778 4,675 ======= ======
F-67 160 - -------------------------------------------------------------------------------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary........................................... 2 Risk Factors................................................. 7 First Banks.................................................. 13 Use of Proceeds.............................................. 13 Market for the Preferred Securities.......................... 14 Accounting Treatment......................................... 14 Capitalization............................................... 15 Selected Consolidated Financial Data......................... 16 Management's Discussion and Analysis......................... 17 Business..................................................... 49 Supervision and Regulation................................... 52 Description of the Preferred Securities...................... 58 Description of the Subordinated Debentures................... 67 Description of the Guarantee................................. 75 Relationship Among the Preferred Securities, the Subordinated Debentures and the Guarantee............................... 77 Description of Other Capital Stock........................... 78 Certain Federal Income Tax Consequences...................... 81 ERISA Considerations......................................... 84 Underwriting................................................. 84 Validity of Securities....................................... 85 Experts...................................................... 86 Incorporation of Certain Documents by Reference.............. 86 Available Information........................................ 86 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 FIRST BANKS, FIRST CAPITAL OR THE UNDERWRITERS. 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 FIRST BANKS 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 ANY SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2,400,000 PREFERRED SECURITIES FIRST PREFERRED CAPITAL TRUST % CUMULATIVE TRUST PREFERRED SECURITIES (LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY) GUARANTEED, AS DESCRIBED HEREIN, BY FIRST BANK FIRST BANKS, INC. ------------------- $60,000,000 % SUBORDINATED DEBENTURES OF FIRST BANKS, INC. -------------------- Prospectus , 1997 -------------------- STIFEL, NICOLAUS & COMPANY INCORPORATED - -------------------------------------------------------------------------------- 161 FIRST BANKS, INC. PART II--INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14--OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION SEC Registration Fee................................................... $20,909.09 NASD Filing Fee........................................................ Nasdaq Listing Fee..................................................... Blue Sky Qualification Fees and Expenses............................... Accounting Fees and Expenses........................................... Legal Fees and Expenses................................................ Printing and Engraving Expenses........................................ Transfer and Registrar Fees............................................ Miscellaneous.......................................................... ---------- Total.......................................................... $ ==========
ITEM 15--INDEMNIFICATION OF DIRECTORS AND OFFICERS Mo. Rev. Stat. 351.355 enumerates standards of conduct that are requisite to a corporation's obligation to provide indemnity to officers and directors and allows a corporation to indemnify based on a lower standard of conduct, if authorized in the corporation's articles of incorporation or any amendment thereto. Article Nine of the Restated Articles of Incorporation of First Banks provides that First Banks shall indemnify its officers and directors in all actions, whether derivative, nonderivative, criminal, administrative or investigative, if such party's conduct is not finally adjudged to be gross negligence or willful misconduct. This is a lower standard than that set forth in the statute described in the preceding sentence. Pursuant to a policy of directors' and officers' liability insurance, with total annual limits of $15 million, officers and directors of First Banks are insured, subject to the limits, retention, exceptions and other terms and conditions of such policy, against liability for any actual or alleged error, misstatement, misleading statement, act or omission, or neglect or breach of duty by the directors or officers of First Banks in the discharge of their duties solely in their capacity as directors or officers of First Banks, individually or collectively, or any matter claimed against them solely by reason of their being directors or officers of First Banks. Under the Trust Agreement, First Banks will agree to indemnify each of the Trustees of First Capital or any predecessor Trustee for First 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. First Banks and First Capital have agreed to indemnify the Underwriters, and the Underwriters have agreed to indemnify First Capital and First Banks 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 (a) Exhibits--See Exhibit Index on Page II-5 hereof. (b) Financial Statement Schedules--Not applicable as all required information is contained in the financial statements and the notes thereto or in the selected financial data. ITEM 17--UNDERTAKINGS Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, (the ``Act'') may be permitted to directors, officers and controlling persons of First Banks pursuant to the provisions described under II-1 162 ``Item 15--Indemnification of Directors and Officers'' above, or otherwise, First Banks has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by First Banks of expenses incurred or paid by a director, officer or controlling person of First Banks 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, First Banks 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. First Banks 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 First Banks pursuant to Rule 424(b)(1) or (4) or 497(h) under the 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-2 163 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, First Banks 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 Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of St. Louis, State of Missouri on December 20, 1996. FIRST BANKS, INC. By: /s/ JAMES F. DIERBERG ----------------------------------------- James F. Dierberg, Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of Securities Act of 1933, First Preferred Capital Trust 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 St. Louis, and the State of Missouri on December 20, 1996. FIRST PREFERRED CAPITAL TRUST By: /s/ JAMES F. DIERBERG ----------------------------------------- Trustee By: /s/ ALLEN H. BLAKE ----------------------------------------- Trustee By: /s/ LAURENCE J. BROST ----------------------------------------- Trustee II-3 164 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James F. Dierberg, Allen H. Blake and Laurence J. Brost and each of them (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JAMES F. DIERBERG Chairman of the Board of Directors, December 20, 1996 - -------------------------------------- President and Chief Executive Officer James F. Dierberg (Principal Executive Officer) /s/ ALLEN H. BLAKE Executive Vice President, Chief December 20, 1996 - -------------------------------------- Financial Officer, Secretary and Allen H. Blake Director (Principal Financial Officer) /s/ LAURENCE J. BROST Vice President and Controller December 20, 1996 - -------------------------------------- (Principal Accounting Officer) Laurence J. Brost /s/ DONALD GUNN, JR. Director December 20, 1996 - -------------------------------------- Donald Gunn, Jr. /s/ GEORGE MARKOS Director December 20, 1996 - -------------------------------------- George Markos
II-4 165 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 1.1 Form of Underwriting Agreement (including the Agreement Among the Underwriters). 4.1 Form of Indenture. 4.2 Form of Subordinated Debenture (included as an exhibit to Exhibit 4.1). 4.3 Certificate of Trust of First Preferred Capital Trust. 4.4 Trust Agreement of First Preferred Capital Trust. 4.5 Form of Amended and Restated Trust Agreement. 4.6 Form of Preferred Security Certificate of First Preferred Capital Trust (included as an exhibit to Exhibit 4.5.). 4.7 Form of Preferred Securities Guarantee Agreement for First Preferred Capital Trust. 4.8 Form of Agreement as to Expenses and Liabilities (included as an exhibit to Exhibit 4.5.). 5.1 Opinion of Lewis, Rice & Fingersh, L.C. as to the validity of the issuance of the Subordinated Debentures. 5.2 Opinion of Richards, Layton & Finger, special Delaware counsel, as to the validity of the issuance of the Preferred Securities to be issued by First Capital Trust. 8.1 Opinion of Lewis, Rice & Fingersh, L.C. as to certain federal income tax matters. 10.1 Shareholders' Agreement by and among James F. Dierberg, II and Mary W. Dierberg, Trustees under Living Trust of James F. Dierberg II, dated July 24, 1989, Michael James Dierberg and Mary W. Dierberg, Trustees under the Living Trust of Michael James Dierberg, dated July 24, 1989; Ellen C. Dierberg and Mary W. Dierberg, Trustees under Living Trust of Ellen C. Dierberg dated July 17, 1992, and First Banks, Inc. (incorporated herein by reference to Exhibit 10.3 to First Banks, Inc.'s Registration Statement on Form S-1 (File No. 33-50576) dated August 6, 1992). 10.2 Comprehensive Banking System License and Service Agreement dated as of July 24, 1991, by and between First Banks, Inc. and Fiserv CIR, Inc. (incorporated herein by reference to Exhibit 10.4 to First Banks, Inc.'s Registration Statement on Form S-1 (File No. 33-50576) dated August 6, 1992). 10.3 Facilities Management Agreement dated December 30, 1992 by and among FirstServ, Inc. and First Services, L.P. (incorporated herein by reference to Exhibit 10(i) to First Banks, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1992). 10.4 Employment Agreement by and among the Company, First Bank-Missouri and John A. Schreiber, dated September 21, 1992 (incorporated herein by reference to Exhibit 10(iii)(A) to the Company's Form 10-K for the year ended December 31, 1993). 10.5 Employment Agreement by and among First Banks, Inc., First Bank-Missouri and Donald W. Williams dated March 22, 1993 (incorporated herein by reference to Exhibit 10(iii)(A) to First Banks, Inc.'s Form 10-K for the year ended December 31, 1993). 10.6 $90,000,000 Secured Credit Agreement, dated as of July 18, 1996, among First Banks, Inc., The Boatmen's National Bank of St. Louis, Harris Trust and Savings Bank, American National Bank and Trust Company, The Frost National Bank and The Boatmen's National Bank of St. Louis, as Agent. 10.7 Stock Purchase and Operating Agreement by and between First Banks, Inc. and BancTEXAS, Inc. dated May 19, 1994 (incorporated herein by reference to Exhibit 2 to First Banks, Inc.'s Quarterly Report on Form 10-Q for the quarter ended June 30, 1994). 11.1 Statement Regarding Computation of Per Share Earnings. II-5 166 EXHIBIT NUMBER DESCRIPTION ------- ----------- 12.1 Statement Regarding Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. 16.1 Letter from Arthur Andersen LLP re change in certifying accountant. 23.1 Consents of KPMG Peat Marwick LLP, Independent Auditors. 23.2 Consent of Arthur Andersen LLP, Independent Auditors. 23.3 Consent of Lewis, Rice & Fingersh, L.C. (to be included in their opinion filed herewith as Exhibit 5.1). 23.4 Consent of Richards, Layton & Finger (to be 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.
II-6 EX-1.1 2 FORM OF UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 2 2,400,000 Preferred Securities First Preferred Capital Trust ---% Cumulative Trust Preferred Securities (Liquidation Amount of $25 per Preferred Security) UNDERWRITING AGREEMENT ---------------------- ---------- --, 1997 STIFEL, NICOLAUS & COMPANY, INCORPORATED As Representative of the Several Underwriters named in Schedule I hereto 500 North Broadway St. Louis, Missouri 63102 Dear Sirs: First Banks, Inc., a Missouri corporation (the "Company") and its financing subsidiary, First Preferred Capital Trust, a Delaware business trust (the "Trust", and hereinafter together with the Company, the "Offerors"), propose that the Trust issue and sell to the several underwriters listed on Schedule I hereto (the "Underwriters"), pursuant to the terms of this Agreement, 2,400,000 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 2,400,000 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 Underwriters, at their option, up to an additional 360,000 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". You are acting as representative of the Underwriters and in such capacity are sometimes herein referred to as the "Representative." The Offerors hereby confirm as follows their agreement with each of the Underwriters in connection with the proposed purchase of the Designated Preferred Securities. 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 each of the Underwriters and each of the Underwriters agrees, 3 severally and not jointly, to purchase from the Trust, at a purchase price of $25.00 per share (the "Purchase Price"), the respective number of Firm Preferred Securities set forth opposite the name of such Underwriter in Schedule I hereto. 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 each Underwriter a commission of $---- per Firm Preferred Security purchased (the "Firm Preferred Securities Commission"). The Representative may by notice to the Company amend Schedule I to add, eliminate or substitute names set forth therein (other than to eliminate the name of the Representative) and to amend the number of firm Preferred Securities to be purchased by any firm or corporation listed thereon, provided that the total number of Firm Preferred Securities listed on Schedule I shall equal 2,400,000. 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 Underwriters, severally and not jointly, an option to purchase all or any portion of the 360,000 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 Underwriters, severally and not jointly, all or any portion of the Option Preferred Securities at the same Purchase Price per share paid for the Firm Preferred Securities. If any Option Preferred Securities are to be purchased, each Underwriter, severally and not jointly, agrees to purchase from the Trust that proportion (subject to adjustment as you may determine to avoid fractional shares) of the number of Option Preferred Securities to be purchased that the number of Firm Preferred Securities set forth opposite the name of such Underwriter in Schedule I hereto (or such number increased as set forth in Section 9 hereof) bears to 2,400,000. 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 Underwriters 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 you giving notice (confirmed in writing) to the Trust setting forth the number of Option Preferred Securities as to which the Underwriters are 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 you, 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 Commission and delivery of certificates for the Firm Preferred Securities shall be made at the offices of Stifel, Nicolaus & Company, Incorporated, 500 North Broadway, St. Louis, Missouri 63102, or such other place as shall be agreed to by you and the Offerors, at 10:00 a.m., St. Louis time, on ----- --, 1997, or at such other time not more than five full business days thereafter as the Offerors and you shall determine (the "Closing Date"). If the Underwriters exercise the option to 2 4 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 Underwriters' offices, or at such other place as the Offerors and you shall determine. Such payments shall be made to an account designated by the Trust by wire transfer or certified or bank cashier's check, in clearing house or similar next day available funds, in the amount of the Purchase Price therefor, against delivery by or on behalf of the Trust to you for the respective accounts of the several Underwriters of certificates for the Designated Preferred Securities to be purchased by the Underwriters. 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 Underwriters shall be delivered by 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 Underwriters shall be made available by the Offerors to you 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 each 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 Underwriters, said Agreement being hereinafter referred to as the "Trust 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 -------------, 1997, 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, each of the Underwriters that: 3 5 (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 Numbers 333------ and 333-------01) for the registration of the Designated Preferred Securities, the Guarantee and $69,000,000 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 Representative. 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 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 Representative prior to (or as are agreed to by the Representative 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 Representative prior to (or is agreed to by the Representative 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 4 6 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. (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 any of the Underwriters expressly for inclusion in the Prospectus beneath the heading "Underwriting" (such information referred to herein as the "Underwriters' 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 5 7 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 Underwriters' Information. (vi) (A) The Company is duly organized, validly existing and in good standing under the laws of the State of Missouri, 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 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, to the knowledge of the Offerors, 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 ---- subsidiaries. They are listed on Exhibit A attached hereto and incorporated --------- herein (the "Subsidiaries"). 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 Subsidiaries. First Bank (St. Louis County, Missouri), First Bank (O'Fallon, Illinois), First Bank FSB, First Bank & Trust, BankTEXAS, N.A., First Commercial Bank and Sunrise Bank of California are collectively referred to as the "Banks". Each Subsidiary is a bank, bank holding company or corporation duly incorporated, validly existing and in good standing under the laws of its respective jurisdiction of incorporation. Each such Subsidiary has full corporate and other power and authority to own, lease and operate its properties and to conduct its 6 8 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. 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 Subsidiaries 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 Subsidiaries on a consolidated basis. All of the issued and outstanding shares of capital stock of the Subsidiaries (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 Subsidiaries. (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, and there are no outstanding securities convertible into or exchangeable for any such securities and no restrictions upon the voting or transfer of any capital stock of the Company or equity securities of the Trust pursuant to the Company's corporate charter or bylaws, the Trust Agreement or any agreement or other instrument to which an Offeror is a party or by which an Offeror is bound. (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 7 9 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 Subsidiaries 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 conducted. (xii) The Offerors and the Subsidiaries 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 Subsidiaries 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 8 10 restrictions that would materially impair the ability of the Company or the Subsidiaries to conduct their businesses in the manner consistent with their past practices. Neither the Offerors nor any of the Subsidiaries 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 Subsidiaries 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 Subsidiaries 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 Subsidiaries on a consolidated basis, and to the knowledge of the Offerors, no other party has asserted that the Offerors or any of the Subsidiaries 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 Subsidiaries or any of their respective properties the breach, violation or default of which could have a material adverse effect on the condition, financial or otherwise, earnings, affairs, business, prospects, or results of operations of the Offerors and the Subsidiaries 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 Subsidiaries 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 Subsidiaries, 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 Subsidiaries 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 Subsidiaries 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 Subsidiaries on a consolidated 9 11 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 Underwriters. 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 Underwriters. (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 Subsidiaries 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 Subsidiaries 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 10 12 neither the Company nor any of the Subsidiaries 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 Subsidiaries including the notes thereto, included in the Registration Statement and Prospectus, are independent public accountants with respect to the Company and the Subsidiaries, as required by the 1933 Act and the 1933 Act Regulations. (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 Subsidiaries 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 Subsidiaries as of the dates indicated and the consolidated results of operations, cash flows and shareholders' equity of the Company and the Subsidiaries 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 Subsidiaries 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 Subsidiaries 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 Subsidiaries 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 Subsidiaries 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 Subsidiaries 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 Subsidiaries on a consolidated basis, whether or not arising in the ordinary course of business; 11 13 (C) neither of the Offerors nor any of the Subsidiaries 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 Subsidiaries on a consolidated basis; (D) neither of the Offerors have declared or paid any dividend, and neither of the Offerors nor any of the Subsidiaries 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, equity securities, long-term debt, obligations under capital leases or, other than in the ordinary course of business, short-term borrowings of the Offerors or the Subsidiaries. (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 Subsidiaries 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 Subsidiaries 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 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 Subsidiaries 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 Subsidiaries have received any notice of infringement or conflict with asserted rights of others with respect to any 12 14 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 Subsidiaries 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 Subsidiaries 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 Subsidiaries 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 any of the Subsidiaries 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 Subsidiaries on a consolidated basis. (xxv) The Offerors and the Subsidiaries have timely and properly prepared and filed all necessary federal, state, local and foreign tax returns 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 Subsidiaries 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 Subsidiaries 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 Subsidiaries 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 Subsidiaries, 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. 13 15 (xxvii) No relationship, direct or indirect, exists between or among the Offerors or the Subsidiaries, on the one hand, and the directors, officers, trustees, shareholders, customers or suppliers of the Offerors or the Subsidiaries, 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 Subsidiaries 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 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 Subsidiaries (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 Representative. 3. OFFERING BY THE UNDERWRITERS. After the ---------------------------- Registration Statement becomes effective or, if the Registration Statement is already effective, after this Agreement becomes effective, the Underwriters propose to offer the Firm Preferred Securities for sale to the public upon the terms and conditions set forth in the Prospectus. The Underwriters 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 Underwriters may reserve and sell such of the Designated Preferred Securities purchased by the Underwriters as the Underwriters 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 Underwriters may allow, and Selected Dealers may re-allow, a concession set forth in the Prospectus to certain other brokers and dealers. 14 16 4. CERTAIN COVENANTS OF THE OFFERORS. The Offerors ------------------------------------ jointly and severally covenant with the Underwriters 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 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 Representative of such timely filing. (b) The Offerors shall notify you 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 Underwriters, from time to time without charge, as soon as available, as many copies as the Underwriters 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 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 15 17 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 you shall not previously have been advised in writing and provided a copy a reasonable time prior to the proposed filings thereof or to which you or counsel for the Underwriter shall object. If it is necessary, in the Company's reasonable opinion or in the reasonable opinion of the Company'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 (provided the Underwriters or counsel for the Underwriters does not reasonably object), and furnishing to you, such number of copies as you 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 you and counsel for the Underwriters). 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 you, such number of copies as you may reasonably request of an amendment or amendments of, or a supplement or supplements to, the Prospectus (in form and substance satisfactory to you and counsel for the Underwriters) 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 you and counsel for the Underwriters in order to qualify the Designated Preferred Securities for offering and sale under the securities or blue sky laws of such jurisdictions as you 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 notify you 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 you 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. 16 18 (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 Representative 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 and such other documents, reports and information concerning the business and financial conditions of the Offerors as the Representative may reasonably request, other than such documents, reports and information for which the Offerors has the legal obligation not to reveal to the Representative. (i) For a period of 30 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 prior written consent of the Representative. (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 Representative, 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. (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 Underwriters' 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 Underwriters shall elect to purchase, except as described in or contemplated by the Prospectus, neither the Offerors nor any of the Subsidiaries shall take any action (or refrain from taking any action) which will result in the Offerors or the Subsidiaries 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 Subsidiaries 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 Representative, purchase, redeem or call for redemption, 17 19 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. (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 Subsidiaries or the offering of the Designated Preferred Securities (the "Offering") without your prior written consent. 5. PAYMENT OF EXPENSES. Whether or not this Agreement ------------------- is terminated or the sale of the Designated Preferred Securities to the Underwriters 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 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 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 you may request, including all filing fees and fees and disbursements of counsel for the Underwriters 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; 18 20 (f) the cost of furnishing to you 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 Underwriters; (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 Agreement is not completed for any reason whatsoever, whether or not such termination is allowable hereunder, the Company will pay you your accountable out-of- pocket expenses in connection herewith or in contemplation of the performance of your obligations hereunder, including without limitation travel expenses, reasonable fees, expenses and disbursements of counsel or other out-of-pocket expenses incurred by you in connection with any discussion of the Offering or the contents of the Registration Statement, any investigation of the Offerors and the Subsidiaries, 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 Underwriters other than in accordance with paragraph (c) above, or for the reimbursement of any expenses of the Underwriters. 6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The ------------------------------------------- obligations of the Underwriters 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 your 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 19 21 date as you 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 or the Representative, shall be contemplated by the Commission or any state authority. Any request on the part 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 you and complied with to your satisfaction and to the satisfaction of counsel for the Underwriters. (b) No Underwriter shall 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 your opinion, is material or omits to state a fact which, in your 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 counsel for the Underwriters, and the Offerors and the Subsidiaries 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) Lewis, Rice & Fingersh, L.C., counsel for the Offerors, shall have furnished to you their signed opinion, dated the Closing Date or the Option Closing Date, as the case may be, in form and substance satisfactory to counsel for the Underwriters, 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 Missouri, and is duly registered as a bank holding company under the BHC Act. Each of the Subsidiaries is duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation. Each of the Company and the Subsidiaries has full 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 Subsidiaries have been duly authorized and validly issued and are fully paid and nonassessable except to the extent such shares may be deemed assessable under 12 U.S.C. Section 1831 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. 20 22 (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, and 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. 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 Subsidiaries pursuant to the corporate charter, by-laws or other governing documents (including without limitation, the Trust Agreement) of the Offerors or the Subsidiaries, or, to the best of such counsel's knowledge, any agreement or other instrument to which either Offeror or any of the Subsidiaries is a party or by which either Offeror or any of the Subsidiaries 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; 21 23 (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 Subsidiaries 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 imposition of any material lien, claim, charge, encumbrance or restriction upon any property or assets of the Offerors or the Subsidiaries 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 Subsidiaries, 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 Subsidiaries 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 Subsidiaries or any of their respective properties which, in each case, is material to the Offerors and the Subsidiaries 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 Missouri 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 Subsidiaries is a party to any agreement or other instrument which grants rights for or relating to the registration of any securities of the Offerors. 22 24 (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 Subsidiaries 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 Subsidiaries 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 Subsidiaries on a consolidated basis or which is required to be disclosed in the Registration Statement or the Prospectus and is not so disclosed. (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 Underwriters. (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 Underwriters' 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 Other Capital Stock", "Supervision and Regulation", "Description of the Preferred Securities", "Description of the Subordinated Debentures", "Description of the Guarantee", "Relationship Among the Preferred Securities, the Subordinated Debentures and the Guarantee", "Certain Federal Income Tax Consequences", "Book Entry Issuance" 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. 23 25 (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 counsel's knowledge, there are no contractual encumbrances or restrictions, or material legal restrictions on the ability of the Subsidiaries (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 Subsidiaries comply in all material respects with all statutes, ordinances, laws, rules and regulations applicable thereto and which are material to the Offerors and the Subsidiaries on a consolidated basis, except in those instances where non-compliance would not materially impair the ability of the Offerors and the Subsidiaries to conduct their business; and (B) the Offerors and the Subsidiaries 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 Subsidiaries 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 Subsidiaries 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 Subsidiaries 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 you and your counsel, at which conferences such counsel made inquiries of such officers, representatives and accountants and discussed in detail the contents of the Registration Statement 24 26 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 Underwriters' 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 Underwriters' 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 or (C) that there is any amendment to the Registration Statement required to be filed that has not already been filed. (e) Richards, Layton and Finger, special Delaware counsel to the Offerors, shall have furnished to you 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 Trust and the Trustees, and is enforceable against the Trust 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 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 shareholders 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 25 27 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 Underwriters, shall have furnished you 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 you 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 matters of law, other than law of the United States and the State of Missouri, and upon the opinions of Lewis, Rice & Fingersh, L.C. 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 Representative 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 Representative, 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 26 28 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: (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 Underwriters, 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 Representative, in each case as compared with the comparable period of the preceding year and with any other period of corresponding length specified by the Underwriters, 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 27 29 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 Underwriters which are derived from the general accounting records and consolidated financial statements of the Company which appear in the Registration Statement specified by the Underwriters 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 shall be a further condition to the obligations of the Underwriters that the Representative 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 Representative, or (z) reflect a material change in items specified in Clause (iv) above from the amounts shown in the Preliminary Prospectus distributed by the Underwriters 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, you 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 Subsidiaries on a consolidated basis; (iii) since such dates there has not been any material transaction entered into by the Offerors or the Subsidiaries 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 28 30 as you 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, you shall have received a certificate of an authorized representative of 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, you 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 Underwriters' participation in such offering. (l) Prior to the Closing Date and, if applicable, the Option Closing Date, the Offerors shall have furnished to you and counsel for the Underwriters 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 you. The Offerors shall furnish you with conformed copies of such opinions, certificates, letters and other documents as you 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 Underwriters' obligations hereunder may be terminated by you 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 Underwriters to the Offerors. 7. INDEMNIFICATION AND CONTRIBUTION. -------------------------------- (a) The Offerors agree to jointly and severally indemnify and hold harmless each Underwriter, each of its directors, officers and agents, and each person, if any, who controls any Underwriter within the meaning of the 1933 Act, against any and all losses, claims, damages, liabilities and expenses (including 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, 29 31 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 you by or on behalf of any 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 any Underwriter (or of any person controlling any Underwriter) to the extent any such losses, claims, damages, liabilities or expenses directly results from the fact that such 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 supplements thereto shall have been furnished to you 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) Each Underwriter, severally and not jointly, 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 each Underwriter, but only with respect to information relating to such Underwriter furnished in writing to an Offeror through such Underwriter by or on behalf of it expressly for use in connection with the registration statement as originally filed, the Registration Statement, any 30 32 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 any 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 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 (and, if such indemnified parties are Underwriters, by you, as Representative). 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), 31 33 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 Underwriters 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 Underwriters on the other in connection with the statements or omissions that resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Offerors on the one hand and the Underwriters 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 Underwriters, 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 Underwriters on the other shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Offerors or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Offerors and the Underwriters agree 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), no Underwriter shall 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 Underwriters 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. 32 34 For purposes of this paragraph (d), each person who controls an 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 Underwriters under this paragraph (d) shall be in addition to any liability that the Underwriters 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 Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling an 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 any Underwriter or of an Offeror, such directors, trustees or officers (or of any person controlling an 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. You shall have the right to terminate ----------- this Agreement at any time at or prior to the Closing Date or, with respect to the Underwriters' 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 Underwriters 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 any of the Subsidiaries 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 Representative 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 Subsidiaries 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 33 35 effect of which on the financial markets of the United States is such as to make it, in your reasonable judgment, impracticable to market the Designated Preferred Securities or enforce contracts for the sale of the Designated Preferred Securities; (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, Missouri, Illinois, Texas or California authorities; or (g) Any action shall have been taken by any government in respect of its monetary affairs which, your 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 Underwriters except as provided in Sections 5 and 7 hereof. 9. DEFAULT OF UNDERWRITERS. If any Underwriter or ----------------------- Underwriters shall default in its or their obligations to purchase Designated Preferred Securities hereunder, the other Underwriters shall be obligated severally, in proportion to their respective commitments hereunder, to purchase the Designated Preferred Securities which such defaulting Underwriter or Underwriters agreed but failed to purchase; provided, --------- however, that the non-defaulting Underwriters shall be under no - ------- obligation to purchase such Designated Preferred Securities if the aggregate number of Designated Preferred Securities to be purchased by such non-defaulting Underwriters shall exceed 110% of the aggregate underwriting commitments set forth in Schedule I ---------- hereto, and provided further, that no non-defaulting Underwriter ---------------- shall be obligated to purchase Designated Preferred Securities to the extent that the number of such Designated Preferred Securities is more than 110% of such Underwriter's underwriting commitment set forth in Schedule I hereto. ---------- In the event that the non-defaulting Underwriters are not obligated under the above paragraph to purchase the Designated Preferred Securities which the defaulting Underwriter or Underwriters agreed but failed to purchase, the Representative may in its discretion arrange for one or more of the Underwriters or for another party or parties to purchase such Designated Preferred Securities on the terms contained herein. If within one business day after such default the Representative does not arrange for the purchase of such Designated Preferred Securities, then the Company shall be entitled to a further period of one business day within which to procure another party or parties satisfactory to the Representative to purchase such Designated Preferred Securities on such terms. In the event that the Representative or the Company do not arrange for the purchase of any Designated Preferred Securities to which a default relates as provided above, this Agreement shall be terminated. 34 36 If the remaining Underwriters or substituted underwriters are required hereby or agree to take up all or a part of the Designated Preferred Securities of a defaulting Underwriter or Underwriters as provided in this Section 9, (i) you shall have the right to postpone the Closing Date for a period of not more than five full business days, in order to effect any changes that, in the opinion of counsel for the Underwriters or the Company, may thereby be made necessary in the Registration Statement or the Prospectus, or in any other documents or agreements, and the Company agrees promptly to file any amendments to the Registration Statement or supplements to the Prospectus which, in its opinion, may thereby be made necessary and (ii) the respective numbers of Designated Preferred Securities to be purchased by the remaining Underwriters or substituted underwriters shall be taken as the basis of their underwriting obligation for all purposes of this Agreement. Nothing herein contained shall relieve any defaulting Underwriter of any liability it may have for damages occasioned by its default hereunder. Any termination of this Agreement pursuant to this Section 9 shall be without liability on the part of any non- defaulting Underwriter or the Company, except for expenses to be paid or reimbursed pursuant to Section 5 and except for the provisions of Section 7. 10. 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 Underwriters 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 Representative shall release the Designated Preferred Securities for initial public offering. The Representative 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 you or by you, as Representative of the several Underwriters, by notifying either Offeror, except that the provisions of Sections 5 and 7 shall at all times be effective. 11. 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 Underwriters 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 Offeror, or by or on behalf of the Underwriters or controlling persons of the Underwriters or any termination or cancellation of this Agreement and shall survive delivery of and payment for the Designated Preferred Securities. 12. 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 11901 Olive Boulevard, St. Louis, Missouri 63141, Attention: Allen H. Blake (with a 35 37 copy to Lewis, Rice & Fingersh, L.C., 500 North Broadway, Suite 2000, St. Louis, Missouri 63102, Attention: Thomas C. Erb, Esq.; and notices to the Underwriters 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: Frederick W. Scherrer, Esq.). In all dealings with the Company under this Agreement, Stifel, Nicolaus & Company, Incorporated shall act as representative of and on behalf of the several Underwriters, and the Company shall be entitled to Act and rely upon any statement, request, notice or agreement on behalf of the Underwriters, made or given by Stifel, Nicolaus & Company, Incorporated on behalf of the Underwriters, as if the same shall have been made or given in writing by the Underwriters. 13. PARTIES. The Agreement herein set forth is made ------- solely for the benefit of the Underwriters and the Offerors and, to the extent expressed, directors, trustees and officers of the Offerors, any person controlling the Offerors or the Underwriters, 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 Underwriters of the Designated Preferred Securities. 14. 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. 15. 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. 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. 36 38 Very truly yours, FIRST BANKS, INC. By:------------------------------ Name: Title: FIRST PREFERRED CAPITAL TRUST By:------------------------------ Name: Title: CONFIRMED AND ACCEPTED, as of ----------- --, 1997. STIFEL, NICOLAUS & COMPANY, INCORPORATED By:--------------------------- Name: Title: For itself and as Representative of the several Underwriters named in Schedule I hereto. 37 39 SCHEDULE I ---------- 38 40 EXHIBIT A LIST OF SUBSIDIARIES 39 41 2,400,000 Preferred Securities First Preferred Capital Trust ----% Cumulative Trust Preferred Securities (Liquidation Amount $25 per Preferred Security AGREEMENT AMONG UNDERWRITERS ---------------------------- ------------, 1997 Stifel, Nicolaus & Company, Incorporated As Representative of the Several Underwriters 500 North Broadway, Suite 1500 St. Louis, Missouri 63102 1. UNDERWRITING AGREEMENT. We understand that First Banks, Inc., a Missouri corporation (the "Company") and its financing subsidiary, First Preferred Capital Trust, a Delaware business trust (the "Trust", and hereinafter together with the Company, the "Offerors"), propose to enter into an underwriting agreement in substantially the form attached (the "Underwriting Agreement") with you and other prospective underwriters (including us) (collectively, the "Underwriters") providing for the several purchase by the Underwriters from the Trust 2,400,000 of the Trust's ----% Cumulative Trust Preferred Securities with a liquidation amount of $25.00 per Preferred Security upon the terms stated in the Underwriting Agreement (such Preferred Securities are herein referred to as the "Firm Preferred Securities"), in which we will agree in accordance with the terms thereof to purchase the number of Firm Preferred Securities set forth opposite our name in Schedule II thereto. In addition, the Trust proposes to grant to the Underwriters, upon the terms stated in the Underwriting Agreement, the right to purchase up to an additional 360,000 Preferred Securities (the "Option Preferred Securities"), identical to the Firm Preferred Securities, for the sole purpose of covering over-allotments in the sale of the Firm Preferred Securities. The Firm Preferred Securities and the Option Preferred Securities are collectively referred to herein as the "Designated Preferred Securities." 2. REGISTRATION STATEMENT AND PROSPECTUS. The Designated Preferred Securities are more particularly described in a registration statement on Form S-2 (Registration Nos. 333------ and 333-------01) filed with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Act"). Amendments to such registration statement have been or are being filed, or a form of prospectus is being flied pursuant to Rule 424(b) and Rule 430A under the Act, in which, with our consent hereby confirmed, we have been named as one of the Underwriters of the Designated Preferred Securities. A copy of the registration statement as filed and a copy of each amendment as filed (excluding exhibits) have heretofore been delivered to us. We confirm that we have examined the registration statement, including amendments thereto, relating to the Designated Preferred Securities, as filed 42 with the Commission, that we are willing to accept the responsibilities of an Underwriter under the Act in respect of the registration statement, and we are willing to proceed with a public offering of the Designated Preferred Securities in the manner contemplated. The registration statement and the related prospectus may be further amended, but no such amendment or change shall release or affect our obligations hereunder or under the Underwriting Agreement. As used herein, the terms "Registration Statement" and "Prospectus" shall have the same meanings as specified in the Underwriting Agreement. 3. AUTHORITY OF REPRESENTATIVE. We hereby authorize you, acting on our behalf, as our representative (a) to complete, execute, and deliver the Underwriting Agreement, to determine the public offering price of the Designated Preferred Securities and the underwriting discount with respect thereto and to make such variations, if any, as in your judgment are appropriate and are not material, provided that the respective amount of Designated Preferred Securities set forth opposite our name in Schedule II thereto shall not be increased without our consent, except as provided herein, (b) to waive performance or satisfaction by the Offerors of obligations or conditions included in the Underwriting Agreement if in your judgment such waiver will not have a material adverse effect upon the interests of the Underwriters, and (c) to take such actions as in your discretion may be necessary or advisable to carry out the Underwriting Agreement, this Agreement, and the transactions for the accounts of the several Underwriters contemplated thereby and hereby. We also authorize you to determine all matters relating to the public advertisement of the Designated Preferred Securities. 4. PUBLIC OFFERING. We authorize you, with respect to any Designated Preferred Securities which we so agree to purchase, to reserve for sale, and on our behalf to sell, to dealers selected by you (including you or any of the other Underwriters, such dealers so selected being hereinafter called "Selected Dealers") and to others all or part of our Designated Preferred Securities as you may determine. Reservations for sales to persons other than Selected Dealers shall be as nearly as practicable in proportion to the respective underwriting obligations of the Underwriters, unless you agree to a smaller proportion at the request of an Underwriter. Reservations for sales to Selected Dealers need not be in such proportion. All sales of reserved Designated Preferred Securities shall be as nearly as practicable in proportion to the respective reservations as calculated from day to day. In your discretion, from time to time, you may add to the reserved Designated Preferred Securities any Designated Preferred Securities retained by us remaining unsold, and you may upon our request release to us any of our Designated Preferred Securities reserved but not sold. Any Designated Preferred Securities so released shall not thereafter be deemed to have been reserved. Upon termination of this Agreement, or prior thereto at your discretion, you shall deliver to our account any of our Designated Preferred Securities reserved but not sold and delivered, except that if the aggregate of all reserved but unsold and undelivered Designated Preferred Securities is less than ------------ Designated Preferred Securities, you are authorized to sell such Designated Preferred Securities for the accounts of the several Underwriters at such price or prices as you may determine. 2 43 Sales of reserved Designated Preferred Securities shall be made to Selected Dealers at the public offering price less the Selected Dealers' Concession pursuant to the Selected Dealer Agreement in substantially the form attached hereto, and to others at the public offering price. Underwriters and Selected Dealers may reallow a concession to other dealers as set forth in the Selected Dealer Agreement. After advice from you that the Designated Preferred Securities are released for sale to the public, we will offer to the public in conformity with the terms of the offering set forth in the Prospectus such of our Designated Preferred Securities as you advise us are not reserved. We authorize you after the Designated Preferred Securities are released for sale to the public, in your discretion, to change the public offering price of the Designated Preferred Securities and the concession, and to buy Designated Preferred Securities for our account from Selected Dealers at the public offering price less such amount not in excess of the Selected Dealers' Concession as you may determine. Sales of Designated Preferred Securities between Underwriters may be made with your prior consent, or as you deem advisable for blue sky purposes. We agree that we will not sell to any accounts over which we exercise discretionary authority any Designated Preferred Securities which we have agreed to purchase under the Underwriting Agreement. 5. ADDITIONAL PROVISIONS REGARDING SALES. You may, in your discretion, charge our account with an amount equal to the Selected Dealers' Concession in respect of each Designated Preferred Security purchased under the Underwriting Agreement by you and not sold by you for our account (and each Designated Preferred Security which you believe has been substituted therefor) which may be delivered against a purchase contract made by you for our account prior to the later of (a) the termination of all of the provisions referred to in Section 10 hereof or (b) the covering by you of any short position created by you for our account, or in lieu of such charge, require us to repurchase on demand at the total cost thereof (including commissions), plus transfer taxes, any such Designated Preferred Security so delivered. 6. PAYMENT AND DELIVERY. At or before 9:00 a.m., New York City time, on the Closing Date (as defined in the Underwriting Agreement) and on each Option Closing Date (as defined in the Underwriting Agreement), we will deliver to you at your office at 500 North Broadway, Suite 1500, St. Louis, Missouri 63102, Attention: Syndicate Department, a certified or bank cashiers' check payable to your order, in clearing house funds, in the amount equal to the initial offering price set forth in the Prospectus less the Selected Dealers' Concession in respect of the number of Firm Preferred Securities or Option Preferred Securities, as the case may be, to be purchased by us pursuant to the Underwriting Agreement. We authorize you for our account to make payment of the purchase price for the Designated Preferred Securities to be purchased by us against delivery to you of such Designated Preferred Securities, and the difference between such price and the amount of our check delivered to you therefor shall be credited to our account. Unless we notify you at least three full business days prior to such Closing Date to make other 3 44 arrangements, you may, in your discretion, advise the Offerors to prepare our certificates in our name. If you have not received our funds as requested, you may in your discretion make such payment on our behalf, in which event we will reimburse you promptly. Any such payment by you shall not relieve us from any of our obligations hereunder or under the Underwriting Agreement. We authorize you for our account to accept delivery of our Designated Preferred Securities from the Trust and to hold such of our Designated Preferred Securities as you have reserved for sale to Selected Dealers and others and to deliver such Designated Preferred Securities against such sales. You will deliver to us our unreserved Designated Preferred Securities as promptly as practicable. Notwithstanding the foregoing provisions of this Section 6, if you so notify us, payment for and delivery of our Designated Preferred Securities may be made through the facilities of The Depository Trust Company, if we are a member, unless we have otherwise notified you prior to a date to be specified by you, or, if we are not a member, settlement may be made through a correspondent who is a member pursuant to instructions we may send to you prior to such specified date. As promptly as practicable after you receive payment for reserved Designated Preferred Securities sold for our account, you will remit to us the purchase price paid by us for such Designated Preferred Securities and credit or debit our account with the difference between the sale price and such purchase price. 7. AUTHORITY TO BORROW. In connection with the transactions contemplated in the Underwriting Agreement or this Agreement, we authorize you, in your discretion, to advance your own funds for our account, charging current interest rates, to arrange loans for our account and in connection therewith to execute and deliver any notes or other instruments and hold or pledge as security any of our Designated Preferred Securities or any Preferred Securities of the Trust purchased for our account. Any lender may rely upon your instructions in all matters relating to any such loan. Any of our Designated Preferred Securities and any Preferred Securities of the Trust purchased for our account held by you may from time to time be delivered to us for carrying purposes, and any such securities will be delivered to you upon demand. 8. STABILIZATION AND OTHER MATTERS. We authorize you in your discretion to make purchases and sales of the Preferred Securities of the Trust for our account in the open market or otherwise, for long or short account, on such terms as you deem advisable and in arranging sales to overallot. If you have purchased Preferred Securities for stabilizing purposes prior to the execution of this Agreement, such purchases shall be treated as having been made pursuant to the foregoing authorization. We also authorize you, either before or after the termination of the offering provisions of this Agreement, to cover any short position incurred pursuant to this Section on such terms as you deem advisable. All such purchases and sales and 4 45 over-allotments shall be made for the accounts of the several Underwriters as nearly as practicable in proportion to their respective underwriting obligations. Our net commitment under this Section (excluding any commitment incurred under the Underwriting Agreement upon exercise of the right to purchase Option Preferred Securities) shall not, at the end of any business day, exceed 15 percent of our maximum underwriting obligation. We will on your demand take up and pay for at cost any Preferred Securities so purchased or sold or over- allotted for our account, and, if any other Underwriter defaults in its corresponding obligation, we will assume our proportionate share of such obligation without relieving the defaulting Underwriter from liability. We will be obligated in respect of purchases and sales made for our account hereunder whether or not any proposed purchase of the Designated Preferred Securities from the Trust is consummated. The existence of this provision is no assurance that the price of the Designated Preferred Securities will be stabilized or that, if stabilizing is commenced, it may not be discontinued at any time. We agree to advise you, from time to time upon your request, during the term of this Agreement, of the number of Designated Preferred Securities retained by us remaining unsold, and will, upon your request, sell to you for the accounts of one or more of the several Underwriters such number of such Designated Preferred Securities as you may designate at such prices, not less than the net price to Selected Dealers nor more than the public offering price, as you may determine. If you effect any stabilizing purchase pursuant to this Section 8, you will notify us promptly of the date and time when the first stabilizing purchase was effected and the date and time when stabilizing was terminated. You will retain such information as is required to be retained by you as "Manager" pursuant to Rule 17a-2 under the Securities Exchange Act of 1934, as amended (the "1934 Act"). We agree that we will not effect any stabilizing purchases without your express authorization, and, if any purchases are effected, we agree to furnish to you not later than three business days following the date upon which stabilization was commenced such information as is required under Rule 17a-2(d). With respect to the Underwriting Agreement, you are also authorized in your discretion (a) to exercise the option therein as to all or any part of the Option Preferred Securities, and to terminate such option in whole or in part prior to its expiration, (b) to postpone the Closing Date and the Option Closing Date referred to in the Underwriting Agreement, and any other time or date specified therein, (c) to exercise any right of cancellation or termination, (d) to arrange for the purchase by other persons (including yourselves or any other Underwriter) of any Designated Preferred Securities not taken up by any defaulting Underwriter and (e) to consent to such other changes in the Underwriting Agreement as in your judgment do not materially adversely affect the substance of our rights and obligations thereunder. We further agree that (a) prior to the termination of this Agreement we will not, directly or indirectly, bid for or purchase any Designated Preferred Securities for our own account, except as provided in this Agreement and in the Underwriting Agreement, and (b) prior to the completion (as defined in Rule 10b-6 under the 1934 Act) of our participation in this 5 46 distribution, we will otherwise comply with Rule 10b-6. 9. ALLOCATION OF EXPENSES AND SETTLEMENT. We authorize you to charge our account with (a) all transfer taxes on Designated Preferred Securities purchased by us pursuant to the Underwriting Agreement and sold by you for our account, (b) Selected Dealers' Concessions in connection with the purchase, marketing and sale of the Designated Preferred Securities for our account, and (c) our proportionate share (based upon our underwriting obligation) of all other expenses incurred by you under this Agreement and in connection with the purchase, carrying, sale and distribution of the Designated Preferred Securities. Your determination of the amount and allocation of such expenses shall be conclusive. In the event of the default of any Underwriter in carrying out its obligations hereunder, the expenses chargeable to such Underwriter pursuant to this Agreement and not paid by it, as well as any additional losses or expenses arising from such default, may be proportionately charged by you against the other Underwriters not so defaulting (including such other persons who purchase Designated Preferred Securities upon a default by an Underwriter pursuant to Section 11 hereof), without, however, relieving such defaulting Underwriter from its liability therefor. As soon as practicable after termination of this Agreement, the accounts hereunder will be settled, but you may reserve from distribution such amount as you deem necessary to cover possible additional expenses. You may at any time make partial distributions of credit balances or call for payment of debit balances. Any of our funds in your hands may be held with your general funds without accountability for interest. Notwithstanding the termination of this Agreement or any settlement, we will pay (a) our proportionate share (based on our underwriting obligation) of all expenses and liabilities which may be incurred by or for the accounts of the Underwriters, including any liability based on the claim that the Underwriters constitute an association, unincorporated business or other separate entity, and of any expenses incurred by you or any other Underwriter with your approval in contesting any such claim or liability, and (b) any transfer taxes paid after such settlement on account of any sale or transfer for our account. 10. TERMINATION. The offering provisions of this Agreement shall terminate 30 days from the date hereof unless extended by you. You may extend said provisions for a period or periods not exceeding an additional 30 days in the aggregate, provided that the Selected Dealer Agreements, if any, are similarly extended. Whether extended or not, said provisions may be terminated in whole or in part by notice from you. 11. DEFAULT BY UNDERWRITERS. Default by one or more Underwriters in respect of their obligations hereunder or under the Underwriting Agreement shall not release us from any of our obligations or in any way affect the liability of any defaulting Underwriter to the other Underwriters for damages resulting from such default. In case of such default by one or more Underwriters, you are authorized to increase, pro rata with other non-defaulting Underwriters, the number of Designated Preferred Securities which we shall be obligated to purchase pursuant to the Underwriting Agreement, provided that the aggregate amount of all such increases for our account shall not exceed our pro rata share of ----------- Designated Preferred 6 47 Securities; and you are further authorized to arrange, but shall not be obligated to arrange, for the purchase by other persons, who may include yourselves or other Underwriters, of all or a portion of any aggregate amount not taken up. In the event any such arrangements are made, the respective numbers of Designated Preferred Securities to be purchased by the non-defaulting Underwriters and by any such other persons shall be taken as the basis for the underwriting obligations under this Agreement. 12. POSITION OF REPRESENTATIVE. Except as otherwise specifically provided in this Agreement, you shall have full authority to take such action as you may deem advisable in respect of all matters pertaining to the Underwriting Agreement and this Agreement and in connection with the purchase, carrying, sale, and distribution of the Designated Preferred Securities (including authority to terminate the Underwriting Agreement as provided therein). You shall be under no liability to us for or in respect of the value of the Designated Preferred Securities or the validity or the form thereof, the Registration Statement, any preliminary prospectus, the Prospectus, the Underwriting Agreement, or other instruments executed by the Offerors, or others; or for or in respect of the issuance, transfer, or delivery of the Designated Preferred Securities; or for the performance by the Offerors, or others of any agreement on its or their part; nor shall you be liable under any of the provisions hereof or for any matters connected herewith, except for your own want of good faith, for obligations expressly assumed by you in this Agreement and for any liabilities imposed upon you by the Act. No obligations on your part shall be implied or inferred herefrom. Authority with respect to matters to be determined by you, or by you and the Offerors, pursuant to the Underwriting Agreement, shall survive the termination of this Agreement. In taking all actions hereunder, except in the performance of your own obligations hereunder and under the Underwriting Agreement, you shall act only as the representative of each of the Underwriters. The commitments and liabilities of each of the several Underwriters are several in accordance with their respective purchase obligations and are not joint or joint and several. Nothing contained herein shall constitute the Underwriters partners or render any of them liable to make payments otherwise than as herein provided. If for federal income tax purposes the Underwriters should be deemed to constitute a partnership, then each Underwriter elects to be excluded from the application of Subchapter K, Chapter 1, Subtitle A, of the Internal Revenue Code of 1986, as amended, and agrees not to take any position inconsistent with such election. Each Underwriter authorizes Stifel, Nicolaus & Company, Incorporated, in its discretion, on behalf of such Underwriter, to execute such evidence of such election as may be required by the Internal Revenue Service. 13. COMPENSATION TO REPRESENTATIVE. As compensation for your services in connection with the purchase of the Designated Preferred Securities and the management of the public offering of the Designated Preferred Securities, we agree to pay you and authorize you to charge our account with an amount equal to $-------------- per share of the Designated Preferred Securities which we have agreed to purchase pursuant to the Underwriting Agreement. 14. INDEMNIFICATION AND FUTURE CLAIMS. Each Underwriter, including you, 7 48 agrees to indemnify, hold harmless and reimburse each other Underwriter and each person, if any, who controls any other Underwriter within the meaning of Section 15 of the Act, and any successor of any other Underwriter, to the extent that, and upon the terms upon which, each Underwriter will be obligated pursuant to the Underwriting Agreement to indemnify, hold harmless and reimburse the Offerors, its directors, officers, and controlling persons, therein specified. In the event that at any time any person other than an Underwriter asserts a claim against one or more of the Underwriters or against you as representative of the Underwriters arising out of an alleged untrue statement or omission in the Registration Statement (or any amendment thereto) or in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) or relating to any transaction contemplated by this Agreement, we authorize you to make such investigation, to retain such counsel for the Underwriters and to take such action in the defense of such claim as you may deem necessary or advisable. You may settle such claim with the approval of a majority in interest of the Underwriters. We will pay our proportionate share (based upon our underwriting obligation) of all expenses incurred by you (including the fees and expenses of counsel for the Underwriters) in investigating and defending against such claim and our proportionate share of the aggregate liability incurred by all underwriters in respect of such claim (after deducting any contribution or indemnification obtained pursuant to the Underwriting Agreement, or otherwise, from persons other than Underwriters), whether such liability is the result of a judgment against one or more of the Underwriters or the result of any such settlement. There shall be credited against any amount paid or payable by us pursuant to this paragraph any loss, damage, liability or expense which is incurred by us as a result of any such claim asserted against us, and if such loss, claim, damage, liability, or expense is incurred by us as a result of any such claim against us, and if such loss, claim, damage, liability, or expense is incurred by us subsequent to any payment by us pursuant to this paragraph, appropriate provision shall be made to effect such credit, by refund or otherwise. Any Underwriter may retain separate counsel at its own expense. A claim against or liability incurred by a person who controls an Underwriter shall be deemed to have been made against or incurred by such Underwriter. In the event of default by any Underwriter in respect of its obligations under this Section, the non-defaulting Underwriters shall be obligated to pay the full amount thereof in the proportions that their respective underwriting obligations bear to the underwriting obligations of all non-defaulting Underwriters, without relieving such defaulting Underwriter of its liability hereunder. Our agreements contained in this Section will remain in full force and effect regardless of any investigation made by or on behalf of such other Underwriter or controlling person and will survive the delivery of and payment for the Designated Preferred Securities and the termination of this Agreement and the similar agreements entered into with the other Underwriters. 15. BLUE SKY AND OTHER MATTERS. You will not have any responsibility with respect to the right of any Underwriter or other person to sell the Designated Preferred Securities in any jurisdiction notwithstanding any information you may furnish in that connection. We authorize you to file a New York Further State Notice, if required, and to make and carry out on our behalf any agreements which you may deem necessary in order to procure registration or 8 49 qualification of any of the Designated Preferred Securities in any jurisdiction, and we will at your request make such payments, and furnish to you such information, as you may deem required by reason of any such agreements. We authorize you to file on behalf of the several Underwriters with the National Association of Securities Dealers, Inc. (the "NASD") such documents and information, if any, which are available or have been furnished to you for filing pursuant to the applicable rules, statements, and interpretations of the NASD. 16. TITLE TO DESIGNATED PREFERRED SECURITIES. The Designated Preferred Securities purchased by the respective Underwriters shall remain the property of such Underwriters until sold and no title to any such Designated Preferred Securities shall in any event pass to you by virtue of any of the provisions of this Agreement. 17. CAPITAL REQUIREMENTS. We confirm that the incurrence by us of our obligations under this Agreement and under the Underwriting Agreement will not place us in violation of Rule 15c3-1 under the 1934 Act or of any applicable rules relating to capital requirements of any securities exchange or association to which we are subject. 18. LIABILITY FOR FUTURE CLAIMS. Neither any statement by you of any credit or debit balance in our account nor any reservation from distribution to cover possible additional expenses relating to the Designated Preferred Securities will constitute any representation by you as to the existence or nonexistence of possible unforeseen expenses or liabilities of or charges against the several Underwriters. Notwithstanding the distribution of any net credit balance to us, we will be and remain liable for, and will pay on demand, (a) our proportionate share (based upon our underwriting obligation) of all expenses and liabilities which may be incurred by or for the accounts of the Underwriters, including any liability which may be incurred by the Underwriters or any of them based on the claim that the Underwriters constitute an association, unincorporated business, partnership, or any separate entity, and (b) any transfer taxes paid after such settlement on account of any sale or transfer for our account. 19. ACKNOWLEDGMENT OF REGISTRATION STATEMENT, ETC. We hereby confirm that we have examined the Registration Statement (including any amendments or supplements thereto) and Prospectus relating to the Designated Preferred Securities filed with the Commission, that we are willing to accept the responsibilities of an underwriter thereunder and that we are willing to proceed as therein contemplated. We confirm that we have authorized you to advise the Offerors on our behalf (a) as to the statements to be included in any preliminary prospectus and in the Prospectus (including any supplement thereto) relating to the Designated Preferred Securities under the heading "Underwriting," insofar as they relate to us, and (b) that there is no information about us required to be stated in said Registration Statement or said preliminary prospectus or the Prospectus (including any supplement thereto) other than as set forth in the Underwriters' Questionnaire previously delivered by us to you and the Offerors. We understand that the aforementioned documents are subject to further change and that we will be 9 50 supplied with copies of any amendment or amendments to the Registration Statement and of any amended Prospectus promptly, if and when received by you, but the making of such changes and amendments will not release us or affect our obligations hereunder or under the Underwriting Agreement. 20. NOTICES AND GOVERNING LAW. Any notice from you to us shall be mailed, telephoned, or telegraphed to us at our address as set forth in the Underwriters' Questionnaire. Any notice from us to you shall be deemed to have been duly given if mailed, telephoned or telegraphed to you at 500 North Broadway, Suite 1500, St. Louis, Missouri 63102, Attention: Syndicate Department. This Agreement shall be governed by and construed in accordance with the laws of the State of Missouri. 21. OTHER PROVISIONS. We represent that we are actually engaged in the investment banking or securities business and that we are a member in good standing of the NASD or, if we are not such a member, that we are a foreign dealer not eligible for membership in the NASD and that we will not offer or sell any Designated Preferred Securities in, or to persons who are nationals or residents of, the United States of America. In making sales of Designated Preferred Securities, if we are such a member, we agree to comply with all applicable rules of the NASD, including, without limitation, the NASD's Interpretation with respect to Free-Riding and Withholding and Section 24 of Article III of the NASD's Rules of Fair Practice, or if we are a foreign dealer, we agree to comply with such Interpretation and Sections 8, 24 and 36 of such Article as though we were such a member, and with Section 25 as that Section applies to a non-member broker or dealer in a foreign country. We confirm that you have heretofore delivered to us such number of copies of the Prospectus as have been reasonably requested by us, and we further confirm that we have complied and will comply with Rule 15c2-8 under the 1934 Act concerning delivery of each preliminary prospectus and the Prospectus, and that we will furnish to persons who receive a confirmation of sale a copy of the Prospectus filed pursuant to Rule 424(b) or Rule 424(c) under the Act. We are aware of our statutory responsibilities under the Act, and you are authorized on our behalf to so advise the Commission. 22. COUNTERPARTS. This Agreement may be signed in any number of counterparts which, taken together, shall constitute one and the same instrument, and you may confirm the execution of such counterparts by facsimile signature. ------------------------------------------------- As Attorney-in-Fact for each of the several Underwriters named in Schedule II to the Underwriting Agreement 10 51 Confirmed as of the date first above written. STIFEL, NICOLAUS & COMPANY, INCORPORATED As Representative of the Several Underwriters By: ---------------------------------------------------- Name: Title: 11 EX-4.1 3 FORM OF INDENTURE 1 EXHIBIT 4.1 2 ============================================================================== [FORM OF INDENTURE] FIRST BANKS, INC. AND STATE STREET BANK AND TRUST COMPANY, AS TRUSTEE INDENTURE ---------------% SUBORDINATED DEBENTURES DUE 2027 DATED AS OF JANUARY -----, 1997. ============================================================================== 3 TABLE OF CONTENTS
Page ---- ARTICLE I. DEFINITIONS. . . . . . . . . . . . . . . . 1 Section 1.1. Definitions of Terms.. . . . . . . . . . . 1 ARTICLE II. ISSUE, DESCRIPTION, TERMS, CONDITIONS, REGISTRATION AND EXCHANGE OF THE DEBENTURES . . . . . . . . . . . . . . . . 8 Section 2.1. Designation and Principal Amount.. . . . . 8 Section 2.2. Maturity.. . . . . . . . . . . . . . . . . 8 Section 2.3. Form and Payment . . . . . . . . . . . . . 9 Section 2.4. [Intentionally Omitted] Section 2.5. Interest . . . . . . . . . . . . . . . . . 11 Section 2.6. Execution and Authentications. . . . . . . 12 Section 2.7. Registration of Transfer and Exchange. . . 12 Section 2.8. Temporary Debentures . . . . . . . . . . . 13 Section 2.9. Mutilated, Destroyed, Lost or Stolen Debentures . . . . . . . . . . . . . . . . 14 Section 2.10. Cancellation . . . . . . . . . . . . . . . 14 Section 2.11. Benefit of Indenture . . . . . . . . . . . 14 Section 2.12. Authentication Agent . . . . . . . . . . . 15 ARTICLE III. REDEMPTION OF DEBENTURES . . . . . . . . . 15 Section 3.1. Redemption . . . . . . . . . . . . . . . . 15 Section 3.2. Special Event Redemption . . . . . . . . . 15 Section 3.3. Optional Redemption by Company . . . . . . 16 Section 3.4. Notice of Redemption . . . . . . . . . . . 16 Section 3.5. Payment Upon Redemption. . . . . . . . . . 17 Section 3.6. No Sinking Fund. . . . . . . . . . . . . . 18 ARTICLE IV. EXTENSION OF INTEREST PAYMENT PERIOD . . . 18 Section 4.1. Extension of Interest Payment Period . . . 18 Section 4.2. Notice of Extension. . . . . . . . . . . . 18 Section 4.3. Limitation on Transactions . . . . . . . . 19 ARTICLE V. PARTICULAR COVENANTS OF THE COMPANY. . . . 19 Section 5.1. Payment of Principal and Interest. . . . . 19 Section 5.2. Maintenance of Agency. . . . . . . . . . . 19 Section 5.3. Paying Agents. . . . . . . . . . . . . . . 20 Section 5.4. Appointment to Fill Vacancy in Office of Trustee . . . . . . . . . . . . . . . . 21 Section 5.5. Compliance with Consolidation Provisions . . . . . . . . . . . . . . . . 21 Section 5.6. Limitation on Transactions . . . . . . . . 21 Section 5.7. Covenants as to the Trust. . . . . . . . . 21 Section 5.8. Covenants as to Purchases. . . . . . . . . 22 i 4 ARTICLE VI. DEBENTUREHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE. . . . . . . . 22 Section 6.1. Company to Furnish Trustee Names and Addresses of Debentureholders. . . . . . . 22 Section 6.2. Preservation of Information Communications with Debentureholders . . . 22 Section 6.3. Reports by the Company . . . . . . . . . . 22 Section 6.4. Reports by the Trustee . . . . . . . . . . 23 ARTICLE VII. REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF DEFAULT . . . 23 Section 7.1. Events of Default. . . . . . . . . . . . . 23 Section 7.2. Collection of Indebtedness and Suits for Enforcement by Trustee . . . . . . . . 25 Section 7.3. Application of Moneys Collected. . . . . . 26 Section 7.4. Limitation on Suits. . . . . . . . . . . . 26 Section 7.5. Rights and Remedies Cumulative; Delay or Omission not Waiver . . . . . . . . . . 27 Section 7.6. Control by Debentureholders. . . . . . . . 27 Section 7.7. Undertaking to Pay Costs . . . . . . . . . 28 ARTICLE VIII. FORM OF DEBENTURE AND ORIGINAL ISSUE . . . 28 Section 8.1. Form of Debenture. . . . . . . . . . . . . 28 Section 8.2. Original Issue of Debentures . . . . . . . 28 ARTICLE IX. CONCERNING THE TRUSTEE . . . . . . . . . . 29 Section 9.1. Certain Duties and Responsibilities Trustee. . . . . . . . . . . . . . . . . . 29 Section 9.2. Notice of Defaults . . . . . . . . . . . . 30 Section 9.3. Certain Rights of Trustee. . . . . . . . . 30 Section 9.4. Trustee Not Responsible for Recitals, etc. . . . . . . . . . . . . . . . . . . . 31 Section 9.5. May Hold Debentures. . . . . . . . . . . . 31 Section 9.6. Moneys Held in Trust . . . . . . . . . . . 31 Section 9.7. Compensation and Reimbursement . . . . . . 32 Section 9.8. Reliance on Officers' Certificate. . . . . 32 Section 9.9. Disqualification: Conflicting Interests. . . . . . . . . . . . . . . . . 32 Section 9.10. Corporate Trustee Required; Eligibility. . . . . . . . . . . . . . . . 33 Section 9.11. Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . 33 Section 9.12. Acceptance of Appointment by Successor . . 34 Section 9.13. Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . 35 Section 9.14. Preferential Collection of Claims Against the Company. . . . . . . . . . . . 35 ARTICLE X. CONCERNING THE DEBENTUREHOLDERS. . . . . . 35 Section 10.1. Evidence of Action by Holders. . . . . . . 35 Section 10.2. Proof of Execution by Debentureholders . . 36 Section 10.3. Who May be Deemed Owners . . . . . . . . . 36 Section 10.4. Certain Debentures Owned by Company Disregarded. . . . . . . . . . . . . . . . 36 Section 10.5. Actions Binding on Future Debentureholders . . . . . . . . . . . . . 36 ii 5 ARTICLE XI. SUPPLEMENTAL INDENTURES. . . . . . . . . . 37 Section 11.1. Supplemental Indentures Without the Consent of Debentureholders. . . . . . . . 37 Section 11.2. Supplemental Indentures with Consent of Debentureholders. . . . . . . . . . . . 38 Section 11.3. Effect of Supplemental Indentures. . . . . 38 Section 11.4. Debentures Affected by Supplemental Indentures . . . . . . . . . . . . . . . . 38 Section 11.5. Execution of Supplemental Indentures . . . 38 ARTICLE XII. SUCCESSOR CORPORATION. . . . . . . . . . . 39 Section 12.1. Company May Consolidate, etc . . . . . . . 39 Section 12.2. Successor Corporation Substituted. . . . . 39 Section 12.3. Evidence of Consolidation, etc. to Trustee. . . . . . . . . . . . . . . . . . 40 ARTICLE XIII. SATISFACTION AND DISCHARGE . . . . . . . . 40 Section 13.1. Satisfaction and Discharge of Indenture. . . . . . . . . . . . . . . . . 40 Section 13.2. Discharge of Obligations . . . . . . . . . 41 Section 13.3. Deposited Moneys to be Held in Trust . . . 41 Section 13.4. Payment of Monies Held by Paying Agents . . . . . . . . . . . . . . . . . . 41 Section 13.5. Repayment to Company . . . . . . . . . . . 41 ARTICLE XIV. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS . . . 42 Section 14.1. No Recourse. . . . . . . . . . . . . . . . 42 ARTICLE XV. MISCELLANEOUS PROVISIONS . . . . . . . . . 42 Section 15.1. Effect on Successors and Assigns . . . . . 42 Section 15.2. Actions by Successor . . . . . . . . . . . 42 Section 15.3. Surrender of Company Powers. . . . . . . . 42 Section 15.4. Notices. . . . . . . . . . . . . . . . . . 43 Section 15.5. Governing Law. . . . . . . . . . . . . . . 43 Section 15.6. Treatment of Debentures as Debt. . . . . . 43 Section 15.7. Compliance Certificates and Opinions . . . 43 Section 15.8. Payments on Business Days. . . . . . . . . 43 Section 15.9. Conflict with Trust Indenture Act. . . . . 44 Section 15.10. Counterparts . . . . . . . . . . . . . . . 44 Section 15.11. Separability . . . . . . . . . . . . . . . 44 Section 15.12. Assignment . . . . . . . . . . . . . . . . 44 Section 15.13. Acknowledgment of Rights . . . . . . . . . 44 iii 6 ARTICLE XVI. SUBORDINATION OF DEBENTURES. . . . . . . . 44 Section 16.1. Agreement to Subordinate . . . . . . . . . 45 Section 16.2. Default on Senior Debt, Subordinated Debt or Additional Senior Obligations. . . 45 Section 16.3. Liquidation; Dissolution; Bankruptcy . . . 45 Section 16.4. Subrogation. . . . . . . . . . . . . . . . 46 Section 16.5. Trustee to Effectuate Subordination. . . . 47 Section 16.6. Notice by the Company. . . . . . . . . . . 47 Section 16.7. Rights of the Trustee; Holders of Senior Indebtedness. . . . . . . . . . . . 48 Section 16.8. Subordination may not be Impaired. . . . . 48
iv 7 CROSS-REFERENCE TABLE
Section of Trust Indenture Act Section of of 1939, as amended Indenture - ------------------- --------- 310(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.10 310(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9.9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.11 310(c) . . . . . . . . . . . . . . . . . . . . . . . Not Applicable 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.14 311(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.14 311(c) . . . . . . . . . . . . . . . . . . . . . . . Not Applicable 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2(a) 312(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2(c) 312(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.2(c) 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4(a) 313(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4(b) 313(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4(b) 313(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4(c) 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.3(a) 314(b) . . . . . . . . . . . . . . . . . . . . . . . Not Applicable 314(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.7 314(d) . . . . . . . . . . . . . . . . . . . . . . . Not Applicable 314(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.7 314(f) . . . . . . . . . . . . . . . . . . . . . . . Not Applicable 315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9.3 315(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9.2 315(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1(a) 315(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.1(b) 315(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.7 316(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.6 316(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.4(b) 316(c) . . . . . . . . . . . . . . . . . . . . . . . . . . .10.1(b) 317(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7.2 317(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5.3 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.9 Note: This Cross-Reference Table does not constitute part of this Indenture and shall not affect the interpretation of any of its terms or provisions.
v 8 INDENTURE INDENTURE, dated as of January ---, 1997, between FIRST BANKS, INC., a Missouri corporation (the "Company") and STATE STREET BANK AND TRUST COMPANY, a banking corporation duly organized and existing under the laws of the State of Massachusetts, as trustee (the "Trustee"); RECITALS WHEREAS, for its lawful corporate purposes, the Company has duly authorized the execution and delivery of this Indenture to provide for the issuance of securities to be known as its --------% Subordinated Debentures due 2027 (hereinafter referred to as the "Debentures"), the form and substance of such Debentures and the terms, provisions and conditions thereof to be set forth as provided in this Indenture; WHEREAS, First Preferred Capital Trust, a Delaware statutory business trust (the "Trust"), has offered to the public $---- million aggregate liquidation amount of its Preferred Securities (as defined herein) and proposes to invest the proceeds from such offering, together with the proceeds of the issuance and sale by the Trust to the Company of $---- million aggregate liquidation amount of its Common Securities (as defined herein), in $---- million aggregate principal amount of the Debentures; and WHEREAS, the Company has requested that the Trustee execute and deliver this Indenture; and WHEREAS, all requirements necessary to make this Indenture a valid instrument in accordance with its terms, and to make the Debentures, when executed by the Company and authenticated and delivered by the Trustee, the valid obligations of the Company, have been performed, and the execution and delivery of this Indenture have been duly authorized in all respects: WHEREAS, to provide the terms and conditions upon which the Debentures are to be authenticated, issued and delivered, the Company has duly authorized the execution of this Indenture; and WHEREAS, all things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. NOW, THEREFORE, in consideration of the premises and the purchase of the Debentures by the holders thereof, it is mutually covenanted and agreed as follows for the equal and ratable benefit of the holders of the Debentures: ARTICLE I. DEFINITIONS SECTION 1.1. DEFINITIONS OF TERMS. The terms defined in this Section 1.1 (except as in this Indenture otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.1 and shall include the plural as well as the singular. All other terms used in this Indenture that are defined in the Trust Indenture Act, or that are by reference in the Trust Indenture Act defined in the Securities Act (except as herein otherwise expressly provided or unless the context otherwise requires), shall have the meanings assigned to such terms in the Trust Indenture Act and in the Securities Act as in force at the date of the 9 execution of this instrument. All accounting terms used herein and not expressly defined shall have the meanings assigned to such terms in accordance with Generally Accepted Accounting Principles. "Accelerated Maturity Date" means if the Company elects to accelerate the Maturity Date in accordance with Section 2.2(c), the date selected by the Company which is prior to the Scheduled Maturity Date, but is after March 31, 2002. "Additional Interest" shall have the meaning set forth in Section 2.5. "Additional Senior Obligations" means all indebtedness of the Company whether incurred on or prior to the date of this Indenture or thereafter incurred, for claims in respect of derivative products such as interest and foreign exchange rate contracts, commodity contracts and similar arrangements; provided, however, that Additional Senior Obligations does not include claims in respect of Senior Debt or Subordinated Debt or obligations which, by their terms, are expressly stated to be not superior in right of payment to the Debentures or to rank pari passu in right of payment with the Debentures. For purposes of this definition, "claim" shall have the meaning assigned thereto in Section 101(4) of the United States Bankruptcy Code of 1978, as amended. "Administrative Trustees" shall have the meaning set forth in the Trust Agreement. "Affiliate" means, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities or other ownership interests of the specified Person; (b) any Person 10% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person; (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person; (d) a partnership in which the specified Person is a general partner; (e) any officer or director of the specified Person; and (f) if the specified Person is an individual, any entity of which the specified Person is an officer, director or general partner. "Authenticating Agent" means an authenticating agent with respect to the Debentures appointed by the Trustee pursuant to Section 2.12. "Bankruptcy Law" means Title 11, U.S. Code, or any similar federal or state law for the relief of debtors. "Board of Directors" means the Board of Directors of the Company or any duly authorized committee of such Board. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification. "Business Day" means, with respect to the Debentures, any day other than a Saturday or a Sunday or a day on which federal or state banking institutions in the Borough of Manhattan, The City of New York, are authorized or required by law, executive order or regulation to close, or a day on which the Corporate Trust Office of the Trustee or the Property Trustee is closed for business. 2 10 "Certificate" means a certificate signed by the principal executive officer, the principal financial officer, the principal accounting officer, the treasurer or any vice president of the Company. The Certificate need not comply with the provisions of Section 15.7. "Change in 1940 Act Law" shall have the meaning set forth in the definition of "Investment Company Event." "Commission" means the Securities and Exchange Commission. "Common Securities" means undivided beneficial interests in the assets of the Trust which rank pari passu with the Preferred Securities; provided, however, that upon the occurrence of an Event of Default, the rights of holders of Common Securities to payment in respect of (i) distributions, and (ii) payments upon liquidation, redemption and otherwise are subordinated to the rights of holders of Preferred Securities. "Company" means First Banks, Inc., a corporation duly organized and existing under the laws of the State of Missouri, and, subject to the provisions of Article XII, shall also include its successors and assigns. "Compounded Interest" shall have the meaning set forth in Section 4.1. "Corporate Trust Office" means the office of the Trustee at which, at any particular time, its corporate trust business shall be principally administered, which office at the date hereof is located at 2 International Place, 5th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Trustee. "Coupon Rate" shall have the meaning set forth in Section 2.5. "Custodian" means any receiver, trustee, assignee, liquidator, or similar official under any Bankruptcy Law. "Debentures" shall have the meaning set forth in the Recitals hereto. "Debentureholder," "holder of Debentures," "registered holder," or other similar term, means the Person or Persons in whose name or names a particular Debenture shall be registered on the books of the Company or the Trustee kept for that purpose in accordance with the terms of this Indenture. "Debenture Register" shall have the meaning set forth in Section 2.7(b). "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 3 11 and all dividends of another Person the payment of which, in either case, such Person has guaranteed or is responsible or liable, directly or indirectly, as obligor or otherwise. "Default" means any event, act or condition that with notice or lapse of time, or both, would constitute an Event of Default. "Deferred Interest" shall have the meaning set forth in Section 4.1. "Dissolution Event" means that as a result of the occurrence and continuation of a Special Event, the Trust is to be dissolved in accordance with the Trust Agreement and the Debentures held by the Property Trustee are to be distributed to the holders of the Trust Securities issued by the Trust pro rata in accordance with the Trust Agreement. "Event of Default" means, with respect to the Debentures, any event specified in Section 7.1, which has continued for the period of time, if any, and after the giving of the notice, if any, therein designated. "Exchange Act," means the Securities Exchange Act of 1934, as amended, as in effect at the date of execution of this instrument. "Extended Interest Payment Period" shall have the meaning set forth in Section 4.1. "Extended Maturity Date" means if the Company elects to extend the Maturity Date in accordance with Section 2.2(b), the date selected by the Company which is after the Scheduled Maturity Date but before March 31, 2046. "Federal Reserve" means the Board of Governors of the Federal Reserve System. "Generally Accepted Accounting Principles" means such accounting principles as are generally accepted at the time of any computation required hereunder. "Governmental Obligations" means securities that are (i) direct obligations of the United States of America for the payment of which its full faith and credit is pledged; or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America, the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States of America that, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depositary receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such Governmental Obligation or a specific payment of principal 4 12 of or interest on any such Governmental Obligation held by such custodian for the account of the holder of such depositary receipt; provided, however, that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depositary receipt from any amount received by the custodian in respect of the Governmental Obligation or the specific payment of principal of or interest on the Governmental Obligation evidenced by such depositary receipt. "Herein," "hereof," and "hereunder," and other words of similar import, refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into in accordance with the terms hereof. "Interest Payment Date," 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 the Debentures as the fixed date on which an installment of interest with respect to the Debentures is due and payable. "Investment Company Act," means the Investment Company Act of 1940, as amended, as in effect at the date of execution of this instrument. "Investment Company Event" means the receipt by the Trust of an Opinion of Counsel, rendered by a law firm having a recognized 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 shall be considered an "investment company" that is required to be registered under the Investment Company Act, which Change in 1940 Act Law becomes effective on or after the date of original issuance of the Preferred Securities under the Trust Agreement. "Maturity Date" means the date on which the Debentures mature and on which the principal shall be due and payable together with all accrued and unpaid interest thereon including Compounded Interest and Additional Interest, if any. "Ministerial Action" shall have the meaning set forth in Section 3.2. "Officers' Certificate" means a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Controller or an Assistant Controller or the Secretary or an Assistant Secretary of the Company that is delivered to the Trustee in accordance with the terms hereof. Each such certificate shall include the statements provided for in Section 15.7, if and to the extent required by the provisions thereof. "Opinion of Counsel" means an opinion in writing of legal counsel, who may be an employee of or counsel for the Company, that is delivered to the Trustee in accordance with the terms hereof. Each such opinion shall include the statements provided for in Section 15.7, if and to the extent required by the provisions thereof. 5 13 "Outstanding," when used with reference to the Debentures, means, subject to the provisions of Section 10.4, as of any particular time, all Debentures theretofore authenticated and delivered by the Trustee under this Indenture, except (a) Debentures theretofore canceled by the Trustee or any paying agent, or delivered to the Trustee or any paying agent for cancellation or that have previously been canceled; (b) Debentures or portions thereof for the payment or redemption of which moneys or Governmental Obligations in the necessary amount shall have been deposited in trust with the Trustee or with any paying agent (other than the Company) or shall have been set aside and segregated in trust by the Company (if the Company shall act as its own paying agent); provided, however, that if such Debentures or portions of such Debentures are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as in Article III provided, or provision satisfactory to the Trustee shall have been made for giving such notice; and (c) Debentures in lieu of or in substitution for which other Debentures shall have been authenticated and delivered pursuant to the terms of Section 2.7. "Person" means any individual, corporation, partnership, joint-venture, joint-stock company, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Debenture" means every previous Debenture evidencing all or a portion of the same debt as that evidenced by such particular Debenture; and, for the purposes of this definition, any Debenture authenticated and delivered under Section 2.9 in lieu of a lost, destroyed or stolen Debenture shall be deemed to evidence the same debt as the lost, destroyed or stolen Debenture. "Preferred Securities" means undivided beneficial interests in the assets of the Trust which rank pari passu with Common Securities issued by the Trust; provided, however, that upon the occurrence of an Event of Default, the rights of holders of Common Securities to payment in respect of 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 the Trustee or other Persons that operate directly or indirectly for the benefit of holders of Preferred Securities. "Property Trustee" has the meaning set forth in the Trust Agreement. "Responsible Officer" when used with respect to the Trustee means the Chairman of the Board of Directors, the President, any Vice President, the Secretary, the Treasurer, any trust officer, any corporate trust officer or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the Persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of his or her knowledge of and familiarity with the particular subject. "Scheduled Maturity Date" means March 31, 2027. "Securities Act," means the Securities Act of 1933, as amended, as in effect at the date of execution of this instrument. "Senior Debt" means the principal of (and premium, if any) and interest, if any (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not such claim for post-petition interest is allowed in such proceeding), on Debt, whether 6 14 incurred on or prior to the date of this Indenture or thereafter incurred, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such obligations are not superior in right of payment to the Debentures or to other Debt which is pari passu with, or subordinated to, the Debentures; provided, however, that Senior Debt shall not be deemed to include (i) any Debt of the Company which when incurred and without respect to any election under section 1111(b) of the United States Bankruptcy Code of 1978, as amended, was without recourse to the Company; (ii) any Debt of the Company to any of its subsidiaries; (iii) Debt to any employee of the Company; (iv) Debt which by its terms is subordinated to trade accounts payable or accrued liabilities arising in the ordinary course of business to the extent that payments made to the holders of such Debt by the holders of the Debentures as a result of the subordination provisions of this Indenture would be greater than they otherwise would have been as a result of any obligation of such holders to pay amounts over to the obligees on such trade accounts payable or accrued liabilities arising in the ordinary course of business as a result of subordination provisions to which such Debt is subject; and (v) Debt which constitutes Subordinated Debt. "Senior Indebtedness" shall have the meaning set forth in Section 16.2. "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, trust or similar entity, at least a majority of whose outstanding partnership or similar interests shall at the time be owned by such Person, or by one or more of its Subsidiaries, or by such Person and one or more of its Subsidiaries; and (iii) any limited partnership of which such Person or any of its Subsidiaries is a general partner. "Tax Event" means the receipt by the Trust of an Opinion of Counsel, rendered by a law firm having a recognized 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 the Trust Agreement, there is more than an insubstantial risk that (i) the Trust is, or shall be within 90 days after the date of such Opinion of Counsel, subject to United States federal income tax with respect to income received or accrued on the Debentures; (ii) interest payable by the Company on the Debentures is not, or within 90 days after the date of such Opinion of Counsel, shall not be, deductible by the Company, in whole or in part, for United States federal income tax purposes; or (iii) the Trust is, or shall be within 90 days after the date of such Opinion of Counsel, subject to more than a de minimis amount of other taxes, duties, assessments or other governmental charges. The Trust or the Company shall request and receive such Opinion of Counsel with regard to such matters within a reasonable period of time after the Trust or the Company shall have become aware of the possible occurrence of any of the events described in clauses (i) through (iii) above. 7 15 "Trust" means First Preferred Capital Trust, a Delaware statutory business trust. "Trust Agreement" means the Amended and Restated Trust Agreement, dated January --, 1997, of the Trust. "Trustee" means State Street Bank and Trust Company and, subject to the provisions of Article IX, shall also include its successors and assigns, and, if at any time there is more than one Person acting in such capacity hereunder, "Trustee" shall mean each such Person. "Trust Indenture Act," means the Trust Indenture Act of 1939, as amended, subject to the provisions of Sections 11.1, 11.2, and 12.1, as in effect at the date of execution of this instrument. "Trust Securities" means the Common Securities and Preferred Securities, collectively. "Voting Stock," as applied to stock of any Person, means shares, interests, participations or other equivalents in the equity interest (however designated) in such Person having ordinary voting power for the election of a majority of the directors (or the equivalent) of such Person, other than shares, interests, participations or other equivalents having such power only by reason of the occurrence of a contingency. ARTICLE II. ISSUE, DESCRIPTION, TERMS, CONDITIONS REGISTRATION AND EXCHANGE OF THE DEBENTURES SECTION 2.1. DESIGNATION AND PRINCIPAL AMOUNT. There is hereby authorized Debentures designated the "---% Subordinated Debentures due 2027," limited in aggregate principal amount to $---------- 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 2.6. SECTION 2.2. MATURITY. (a) The Maturity Date shall be either: (i) the Scheduled Maturity Date; or (ii) if the Company elects to extend the Maturity Date beyond the Scheduled Maturity Date in accordance with Section 2.2(b), the Extended Maturity Date; or (iii) if the Company elects to accelerate the Maturity Date to be a date prior to the Scheduled Maturity Date in accordance with Section 2.2(c), the Accelerated Maturity Date. (b) the Company may at any time before the day which is 90 days before the Scheduled Maturity Date, elect to extend the Maturity Date to the Extended Maturity Date, provided that the Company has received the prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve and further provided that the following conditions in this Section 2.2(b) are satisfied both at 8 16 the date the Company gives notice in accordance with Section 2.2(d) of its election to extend the Maturity Date and at the Scheduled Maturity Date: (i) the Company is not in bankruptcy, otherwise insolvent or in liquidation; (ii) the Company is not in default in the payment of interest or principal on the Debentures; (iii) the Trust is not in arrears on payments of Distributions on the Trust Securities issued by it and no deferred Distributions are accumulated; and (iv) the Company has a rating on its Senior Debt of investment grade. (c) the Company may at any time before the day which is 90 days before the Scheduled Maturity Date and after March 31, 2002, elect to shorten the Maturity Date only once to the Accelerated Maturity Date provided that the Company has received the prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. (d) if the Company elects to extend the Maturity Date in accordance with Section 2.2(b), the Company shall give notice to the registered holders of the Debentures, the Property Trustee and the Trust of the extension of the Maturity Date and the Extended Maturity Date at least 90 days and no more than 180 days before the Scheduled Maturity Date. (e) if the Company elects to accelerate the Maturity Date in accordance with Section 2.2(c), the Company shall give notice to the registered holders of the Debentures, the Property Trustee and the Trust of the extension of the Maturity Date and the Accelerated Maturity Date at least 90 days and no more than 180 days before the Accelerated Maturity Date. SECTION 2.3. FORM AND PAYMENT. The Debentures shall be issued in fully registered certificated form without interest coupons. Principal and interest on the Debentures issued in certificated form shall be payable, the transfer of such Debentures shall be registrable and such Debentures shall be exchangeable for Debentures bearing identical terms and provisions at the office or agency of the Trustee; provided, however, that payment of interest may be made at the option of the Company by check mailed to the holder at such address as shall appear in the Debenture Register or by wire transfer to an account maintained by the holder as specified in the Debenture Register, provided that the holder provides proper transfer instructions by the regular record date. Notwithstanding the foregoing, so long as the holder of any Debentures is the Property Trustee, the payment of the principal of and interest (including Compounded Interest and Additional Interest, if any) on such Debentures held by the Property Trustee shall be made at such place and to such account as may be designated by the Property Trustee. SECTION 2.4. [Intentionally Omitted] 9 17 SECTION 2.5. INTEREST. (a) Each Debenture shall 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 IV) quarterly in arrears on March 31, June 30, September 30, and December 31 of each year (each, an "Interest Payment Date," commencing on March 31, 1997), to the Person in whose name such Debenture or any Predecessor Debenture is registered, at the close of business on the regular record date for such interest installment, which shall be the fifteenth day of the last month of the calendar quarter. (b) The amount of interest payable for any period shall be computed on the basis of a 360-day year of twelve 30-day months. 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, shall 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 shall be made on the next succeeding day which is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, such payment shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date such payment was originally payable. (c) If, at any time while the Property Trustee is the holder of any Debentures, the Trust or the Property Trustee is required to pay any taxes, duties, assessments or governmental charges of whatever nature (other than withholding taxes) imposed by the United States, or any other taxing authority, then, in any case, the Company shall pay as additional interest ("Additional Interest") on the Debentures held by the Property Trustee, such additional amounts as shall be required so that the net amounts received and retained by the Trust and the Property Trustee after paying such taxes, duties, assessments or other governmental charges shall be equal to the amounts the Trust and the Property Trustee would have received had no such taxes, duties, assessments or other government charges been imposed. 10 18 SECTION 2.6. EXECUTION AND AUTHENTICATIONS. (a) The Debentures shall be signed on behalf of the Company by its Chief Executive Officer, President or one of its Vice Presidents, under its corporate seal attested by its Secretary or one of its Assistant Secretaries. Signatures may be in the form of a manual or facsimile signature. The Company may use the facsimile signature of any Person who shall have been a Chief Executive Officer, President or Vice President thereof, or of any Person who shall have been a Secretary or Assistant Secretary thereof, notwithstanding the fact that at the time the Debentures shall be authenticated and delivered or disposed of such Person shall have ceased to be the Chief Executive Officer, President or a Vice President, or the Secretary or an Assistant Secretary, of the Company. The seal of the Company may be in the form of a facsimile of such seal and may be impressed, affixed, imprinted or otherwise reproduced on the Debentures. The Debentures may contain such notations, legends or endorsements required by law, stock exchange rule or usage. Each Debenture shall be dated the date of its authentication by the Trustee. (b) A Debenture shall not be valid until authenticated manually by an authorized signatory of the Trustee, or by an Authenticating Agent. Such signature shall be conclusive evidence that the Debenture so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. (c) At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Debentures executed by the Company to the Trustee for authentication, together with a written order of the Company for the authentication and delivery of such Debentures signed by its Chief Executive Officer, President or any Vice President and its Treasurer or any Assistant Treasurer, and the Trustee in accordance with such written order shall authenticate and deliver such Debentures. (d) In authenticating such Debentures and accepting the additional responsibilities under this Indenture in relation to such Debentures, the Trustee shall be entitled to receive, and (subject to Section 9.1) shall be fully protected in relying upon, an Opinion of Counsel stating that the form and terms thereof have been established in conformity with the provisions of this Indenture. (e) The Trustee shall not be required to authenticate such Debentures if the issue of such Debentures pursuant to this Indenture shall affect the Trustee's own rights, duties or immunities under the Debentures and this Indenture or otherwise in a manner that is not reasonably acceptable to the Trustee. SECTION 2.7. REGISTRATION OF TRANSFER AND EXCHANGE. (a) Debentures may be exchanged upon presentation thereof at the office or agency of the Company designated for such purpose in the Borough of Manhattan, The City of New York, for other Debentures and for a like aggregate principal amount, upon payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, all as provided in this Section 2.7. In respect of any Debentures so surrendered for exchange, the Company shall execute, the Trustee shall authenticate and such office or agency shall deliver in exchange therefor the Debenture or Debentures that the Debentureholder making the exchange shall be entitled to receive, bearing numbers not contemporaneously outstanding. 11 19 (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 of New York, or such other location designated by the Company a register or registers (herein referred to as the "Debenture Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall register the Debentures and the transfers of Debentures as in this Article II provided and which at all reasonable times shall be open for inspection by the Trustee. The registrar for the purpose of registering Debentures and transfer of Debentures as herein provided shall be appointed as authorized by Board Resolution (the "Debenture Registrar"). Upon surrender for transfer of any Debenture at the office or agency of the Company designated for such purpose, the Company shall execute, the Trustee shall authenticate and such office or agency shall deliver in the name of the transferee or transferees a new Debenture or Debentures for a like aggregate principal amount. All Debentures presented or surrendered for exchange or registration of transfer, as provided in this Section 2.7, shall be accompanied (if so required by the Company or the Debenture Registrar) by a written instrument or instruments of transfer, in form satisfactory to the Company or the Debenture Registrar, duly executed by the registered holder or by such holder's duly authorized attorney in writing. (c) No service charge shall be made for any exchange or registration of transfer of Debentures, or issue of new Debentures in case of partial redemption, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge in relation thereto, other than exchanges pursuant to Section 2.8, 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 Debentures during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of less than all the Outstanding Debentures and ending at the close of business on the day of such mailing; nor (ii) to register the transfer of or exchange any Debentures or portions thereof called for redemption. SECTION 2.8. TEMPORARY DEBENTURES. Pending the preparation of definitive Debentures, the Company may execute, and the Trustee shall authenticate and deliver, temporary Debentures (printed, lithographed, or typewritten). Such temporary Debentures shall be substantially in the form of the definitive Debentures in lieu of which they are issued, but with such omissions, insertions and variations as may be appropriate for temporary Debentures, all as may be determined by the Company. Every temporary Debenture shall be executed by the Company and be authenticated by the Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Debentures. Without unnecessary delay the Company shall execute and shall furnish definitive Debentures and thereupon any or all temporary Debentures may be surrendered in exchange therefor (without charge to the holders), at the office or agency of the Company designated for the purpose in the Borough of Manhattan, The City of New York, and the Trustee shall authenticate and such office or agency shall deliver in exchange for such temporary Debentures an equal aggregate principal amount of definitive Debentures, unless the Company advises the Trustee to the effect that definitive Debentures need not be executed and furnished until further notice from the Company. Until so exchanged, the temporary Debentures shall be entitled to the same benefits under this Indenture as definitive Debentures authenticated and delivered hereunder. 12 20 SECTION 2.9. MUTILATED, DESTROYED, LOST OR STOLEN DEBENTURES. (a) In case any temporary or definitive Debenture shall become mutilated or be destroyed, lost or stolen, the Company (subject to the next succeeding sentence) shall execute, and upon the Company's request the Trustee (subject as aforesaid) shall authenticate and deliver, a new Debenture bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Debenture, or in lieu of and in substitution for the Debenture so destroyed, lost or stolen. In every case the applicant for a substituted Debenture shall furnish to the Company and the Trustee such security or indemnity as may be required by them to save each of them harmless, and, in every case of destruction, loss or theft, the applicant shall also furnish to the Company and the Trustee evidence to their satisfaction of the destruction, loss or theft of the applicant's Debenture and of the ownership thereof. The Trustee may authenticate any such substituted Debenture and deliver the same upon the written request or authorization of any officer of the Company. Upon the issuance of any substituted Debenture, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. In case any Debenture that has matured or is about to mature shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Debenture, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated Debenture) if the applicant for such payment shall furnish to the Company and the Trustee such security or indemnity as they may require to save them harmless, and, in case of destruction, loss or theft, evidence to the satisfaction of the Company and the Trustee of the destruction, loss or theft of such Debenture and of the ownership thereof. (b) Every replacement Debenture issued pursuant to the provisions of this Section 2.9 shall constitute an additional contractual obligation of the Company whether or not the mutilated, destroyed, lost or stolen Debenture shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debentures duly issued hereunder. All Debentures shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures, and shall preclude (to the extent lawful) any and all other rights or remedies, notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. SECTION 2.10. CANCELLATION. All Debentures surrendered for the purpose of payment, redemption, exchange or registration of transfer shall, if surrendered to the Company or any paying agent, be delivered to the Trustee for cancellation, or, if surrendered to the Trustee, shall be canceled by it, and no Debentures shall be issued in lieu thereof except as expressly required or permitted by any of the provisions of this Indenture. On request of the Company at the time of such surrender, the Trustee shall deliver to the Company canceled Debentures held by the Trustee. In the absence of such request the Trustee may dispose of canceled Debentures in accordance with its standard procedures and deliver a certificate of disposition to the Company. If the Company shall otherwise acquire any of the Debentures, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Debentures unless and until the same are delivered to the Trustee for cancellation. SECTION 2.11. BENEFIT OF INDENTURE. 13 21 Nothing in this Indenture or in the Debentures, express or implied, shall give or be construed to give to any Person, other than the parties hereto and the holders of the Debentures (and, with respect to the provisions of Article XVI, the holders of Senior Indebtedness) any legal or equitable right, remedy or claim under or in respect of this Indenture, or under any covenant, condition or provision herein contained; all such covenants, conditions and provisions being for the sole benefit of the parties hereto and of the holders of the Debentures (and, with respect to the provisions of Article XVI, the holders of Senior Indebtedness). SECTION 2.12. AUTHENTICATION AGENT. (a) So long as any of the Debentures remain Outstanding there may be an Authenticating Agent for any or all such Debentures, which the Trustee shall have the right to appoint. Said Authenticating Agent shall be authorized to act on behalf of the Trustee to authenticate Debentures issued upon exchange, transfer or partial redemption thereof, and Debentures so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. All references in this Indenture to the authentication of Debentures by the Trustee shall be deemed to include authentication by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall be a corporation that has a combined capital and surplus, as most recently reported or determined by it, sufficient under the laws of any jurisdiction under which it is organized or in which it is doing business to conduct a trust business, and that is otherwise authorized under such laws to conduct such business and is subject to supervision or examination by federal or state authorities. If at any time any Authenticating Agent shall cease to be eligible in accordance with these provisions, it shall resign immediately. (b) Any Authenticating Agent may at any time resign by giving written notice of resignation to the Trustee and to the Company. The Trustee may at any time (and upon request by the Company shall) terminate the agency of any Authenticating Agent by giving written notice of termination to such Authenticating Agent and to the Company. Upon resignation, termination or cessation of eligibility of any Authenticating Agent, the Trustee may appoint an eligible successor Authenticating Agent acceptable to the Company. Any successor Authenticating Agent, upon acceptance of its appointment hereunder, shall become vested with all the rights, powers and duties of its predecessor hereunder as if originally named as an Authenticating Agent pursuant hereto. ARTICLE III. REDEMPTION OF DEBENTURES SECTION 3.1. REDEMPTION. Subject to the Company having received prior approval of the Federal Reserve, if then required under the applicable capital guidelines or policies of the Federal Reserve, the Company may redeem the Debentures issued hereunder on and after the dates set forth in and in accordance with the terms of this Article III. SECTION 3.2. SPECIAL EVENT REDEMPTION. 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 14 22 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 180 days following the occurrence of such Special Event (the "180-Day Period") at a redemption price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest thereon to the date of such redemption (the "Redemption Price"), provided that if at the time there is available to the Company the opportunity to eliminate, within the 180-Day Period, a Tax Event by taking some ministerial action (a "Ministerial Action"), such as filing a form or making an election, or pursuing some other similar reasonable measure which has no adverse effect on the Company, the Trust or the holders of the Trust Securities issued by the Trust, the Company shall pursue such Ministerial Action in lieu of redemption, and, provided further, that the Company shall have no right to redeem the Debentures while the Trust is pursuing any Ministerial Action pursuant to its obligations under the Trust Agreement. 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 ---------, 2002, at a Redemption Price equal to 100% of the principal amount to be redeemed plus any accrued and unpaid interest thereon to the date of such redemption. Any redemption pursuant to this Section 3.3(a) shall be made upon not less than 30 days nor more than 60 days notice to the holder of the Debentures, at the Redemption Price. If the Debentures are only partially redeemed pursuant to this Section 3.3, the Debentures shall be redeemed pro rata or by lot or in such other manner as the Trustee shall deem appropriate and fair in its discretion. The Redemption Price shall be paid prior to 12:00 noon, New York time, on the date of such redemption or at such earlier time as the Company determines provided that the Company shall deposit with the Trustee an amount sufficient to pay the Redemption Price by 10:00 a.m., New York time, on the date such Redemption Price is to be paid. (b) If a partial redemption of the Debentures would result in the delisting of the Preferred Securities issued by the Trust from The Nasdaq Stock Market's National Market or any 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. SECTION 3.4. NOTICE OF REDEMPTION. (a) In case the Company shall desire to exercise such right to redeem all or, as the case may be, a portion of the Debentures in accordance with the right reserved so to do, the Company shall, or shall cause the Trustee to upon receipt of 45 days' written notice from the Company, give notice of such redemption to holders of the Debentures to be redeemed by mailing, first class postage prepaid, a notice of such redemption not less than 30 days and not more than 60 days before the date fixed for redemption to such holders at their last addresses as they shall appear upon the Debenture Register unless a shorter period is specified in the Debentures to be redeemed. Any notice that is mailed in the manner herein 15 23 provided shall be conclusively presumed to have been duly given, whether or not the registered holder receives the notice. In any case, failure duly to give such notice to the holder of any Debenture designated for redemption in whole or in part, or any defect in the notice, shall not affect the validity of the proceedings for the redemption of any other Debentures. In the case of any redemption of Debentures prior to the expiration of any restriction on such redemption provided in the terms of such Debentures or elsewhere in this Indenture, the Company shall furnish the Trustee with an Officers' Certificate evidencing compliance with any such restriction. Each such notice of redemption shall specify the date fixed for redemption and the Redemption Price and shall state that payment of the Redemption Price shall be made at the office or agency of the Company in the Borough of Manhattan, The City of New York or at the Corporate Trust Office, upon presentation and surrender of such Debentures, that interest accrued to the date fixed for redemption shall be paid as specified in said notice and that from and after said date interest shall cease to accrue. If less than all the Debentures are to be redeemed, the notice to the holders of the Debentures shall specify the particular Debentures to be redeemed. If the Debentures are to be redeemed in part only, the notice shall state the portion of the principal amount thereof to be redeemed and shall state that on and after the redemption date, upon surrender of such Debenture, a new Debenture or Debentures in principal amount equal to the unredeemed portion thereof shall be issued. (b) If less than all the Debentures are to be redeemed, the Company shall give the Trustee at least 45 days' notice in advance of the date fixed for redemption as to the aggregate principal amount of Debentures to be redeemed, and thereupon the Trustee shall select, by lot or in such other manner as it shall deem appropriate and fair in its discretion, the portion or portions (equal to $25 or any integral multiple thereof) of the Debentures to be redeemed and shall thereafter promptly notify the Company in writing of the numbers of the Debentures to be redeemed, in whole or in part. The Company may, if and whenever it shall so elect pursuant to the terms hereof, by delivery of instructions signed on its behalf by its President or any Vice President, instruct the Trustee or any paying agent to call all or any part of the Debentures for redemption and to give notice of redemption in the manner set forth in this Section 3.4, such notice to be in the name of the Company or its own name as the Trustee or such paying agent may deem advisable. In any case in which notice of redemption is to be given by the Trustee or any such paying agent, the Company shall deliver or cause to be delivered to, or permit to remain with, the Trustee or such paying agent, as the case may be, such Debenture Register, transfer books or other records, or suitable copies or extracts therefrom, sufficient to enable the Trustee or such paying agent to give any notice by mail that may be required under the provisions of this Section 3.4. SECTION 3.5. PAYMENT UPON REDEMPTION. (a) If the giving of notice of redemption shall have been completed as above provided, the Debentures or portions of Debentures to be redeemed specified in such notice shall become due and payable on the date and at the place stated in such notice at the applicable Redemption Price, and interest on such Debentures or portions of Debentures shall cease to accrue on and after the date fixed for redemption, unless the Company shall default in the payment of such Redemption Price with respect to any such Debenture or portion thereof. On presentation and surrender of such Debentures on or after the date fixed for redemption at the place of payment specified in the notice, said Debentures shall be paid and redeemed at the Redemption Price (but if the date fixed for redemption is an interest payment date, the interest installment payable on such date shall be payable to the registered holder at the close of business on the applicable record date pursuant to Section 3.3). (b) Upon presentation of any Debenture that is to be redeemed in part only, the Company shall execute and the Trustee shall authenticate and the office or agency where the Debenture is presented shall 16 24 deliver to the holder thereof, at the expense of the Company, a new Debenture of authorized denomination in principal amount equal to the unredeemed portion of the Debenture so presented. SECTION 3.6. NO SINKING FUND. The Debentures are not entitled to the benefit of any sinking fund. ARTICLE IV. EXTENSION OF INTEREST PAYMENT PERIOD SECTION 4.1. EXTENSION OF INTEREST PAYMENT PERIOD. So long as no Event of Default has occurred and is continuing, the Company shall have the right, at any time and from time to time during the term of the Debentures, to defer payments of interest by extending the interest payment period of such Debentures for a period not exceeding 20 consecutive quarters (the "Extended Interest Payment Period"), during which Extended Interest Payment Period no interest shall be due and payable; provided that no Extended Interest Payment Period may extend beyond the Maturity Date. Interest, the payment of which has been deferred because of the extension of the interest payment period pursuant to this Section 4.1, shall bear interest thereon at the Coupon Rate compounded quarterly for each quarter of the Extended Interest Payment Period ("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 Debenture Register on the first record date after the end of the Extended Interest Payment Period. Before the termination of any Extended Interest Payment Period, the Company may further extend such period, provided that such period together with all such further extensions thereof shall not exceed 20 consecutive quarters, or extend beyond the Maturity Date of the Debentures. Upon the termination of any Extended Interest Payment Period and upon the payment of all Deferred Interest then due, the Company may commence a new Extended Interest Payment Period, subject to the foregoing requirements. No interest shall be due and payable during an Extended Interest Payment Period, except at the end thereof, but the Company may prepay at any time all or any portion of the interest accrued during an Extended Interest Payment Period. SECTION 4.2. NOTICE OF EXTENSION. (a) If the Property Trustee is the only registered holder of the Debentures at the time the Company 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 Stock Market's National Market or other applicable self-regulatory organization or to holders of the Preferred Securities issued by the Trust, but in any event at least one Business Day before such record date. (b) If the Property Trustee is not the only holder of the Debentures at the time the Company selects an Extended Interest Payment Period, the Company shall give the holders of the Debentures and the Trustee written notice of its selection of such Extended Interest Payment Period at least one Business 17 25 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 Stock Market's National Market or other applicable self-regulatory organization or to holders of the Debentures. (c) The quarter in which any notice is given pursuant to paragraphs (a) or (b) of this Section 4.2 shall be counted as one of the 20 quarters permitted in the maximum Extended Interest Payment Period permitted under Section 4.1. SECTION 4.3. LIMITATION ON TRANSACTIONS. If (i) the Company shall exercise its right to defer payment of interest as provided in Section 4.1; or (ii) there shall have occurred any Event of Default, then (a) the Company shall not declare or pay any dividend on, make any distributions with respect to, or redeem, purchase, acquire or make a liquidation payment with respect to, any of its capital stock (other than (i) as a result of a reclassification of its capital stock for another class of its capital stock; or (ii) the conversion of the Company's Class A Convertible, Adjustable Rate Preferred Stock to the Company's common stock, par value $250.00 per share); (b) the Company shall not make any payment of interest, principal or premium, if any, or repay, repurchase or redeem any debt securities issued by the Company which rank pari passu with or junior to the Debentures; provided, however, that notwithstanding the foregoing the Company may make payments pursuant to its obligations under the Preferred Securities Guarantee; and (c) the Company shall not redeem, purchase or acquire less than all of the outstanding Debentures or any of the Preferred Securities. ARTICLE V. PARTICULAR COVENANTS OF THE COMPANY SECTION 5.1. PAYMENT OF PRINCIPAL AND INTEREST. The Company shall duly and punctually pay or cause to be paid the principal of and interest on the Debentures at the time and place and in the manner provided herein. SECTION 5.2. MAINTENANCE OF AGENCY. So long as any of the Debentures remain Outstanding, the Company shall maintain an office or agency in the Borough of Manhattan, The City of New York, and at such other location or locations as may be designated as provided in this Section 5.2, where (i) Debentures may be presented for payment; (ii) Debentures may be presented as hereinabove authorized for registration of transfer and exchange; and (iii) notices and demands to or upon the Company in respect of the Debentures and this Indenture may be given or served, such designation to continue with respect to such office or agency until the Company shall, by written notice signed by its President or a Vice President and delivered to the Trustee, designate some other office or agency for such purposes or any of them. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, notices and demands. In addition to any such office or agency, the Company may from time to time designate one or more offices or agencies outside of the Borough of Manhattan, The City of New York, where the Debentures may be presented for registration or transfer and for exchange in the manner 18 26 provided herein, and the Company may from time to time rescind such designation as the Company may deem desirable or expedient; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain any such office or agency in the Borough of Manhattan, The City of New York, for the purposes above mentioned. The Company shall give the Trustee prompt written notice of any such designation or rescission thereof. SECTION 5.3. PAYING AGENTS. (a) If the Company shall appoint one or more paying agents for the Debentures, other than the Trustee, the Company shall cause each such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 5.3: (i) that it shall hold all sums held by it as such agent for the payment of the principal of or interest on the Debentures (whether such sums have been paid to it by the Company or by any other obligor of such Debentures) in trust for the benefit of the Persons entitled thereto; (ii) that it shall give the Trustee notice of any failure by the Company (or by any other obligor of such Debentures) to make any payment of the principal of or interest on the Debentures when the same shall be due and payable; (iii) that it shall, at any time during the continuance of any failure referred to in the preceding paragraph (a)(ii) above, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such paying agent; and (iv) that it shall perform all other duties of paying agent as set forth in this Indenture. (b) If the Company shall act as its own paying agent with respect to the Debentures, it shall on or before each due date of the principal of or interest on such Debentures, set aside, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay such principal or interest so becoming due on Debentures until such sums shall be paid to such Persons or otherwise disposed of as herein provided and shall promptly notify the Trustee of such action, or any failure (by it or any other obligor on such Debentures) to take such action. Whenever the Company shall have one or more paying agents for the Debentures, it shall, prior to each due date of the principal of or interest on any Debentures, deposit with the paying agent a sum sufficient to pay the principal or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such principal or interest, and (unless such paying agent is the Trustee) the Company shall promptly notify the Trustee of this action or failure so to act. (c) Notwithstanding anything in this Section 5.3 to the contrary, (i) the agreement to hold sums in trust as provided in this Section 5.3 is subject to the provisions of Section 13.3 and 13.4; and (ii) the Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or direct any paying agent to pay, to the Trustee all sums held in trust by the Company or such paying agent, such sums to be held by the Trustee upon the same terms and conditions as those upon which such sums were held by the Company or such paying agent; and, upon such payment by any paying agent to the Trustee, such paying agent shall be released from all further liability with respect to such money. 19 27 SECTION 5.4. APPOINTMENT TO FILL VACANCY IN OFFICE OF TRUSTEE. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, shall appoint, in the manner provided in Section 9.10, a Trustee, so that there shall at all times be a Trustee hereunder. SECTION 5.5. COMPLIANCE WITH CONSOLIDATION PROVISIONS. The Company shall not, while any of the Debentures remain outstanding, consolidate with, or merge into, or merge into itself, or sell or convey all or substantially all of its property to any other company unless the provisions of Article XII hereof are complied with. SECTION 5.6. LIMITATION ON TRANSACTIONS. If Debentures are issued to the Trust or a trustee of the Trust in connection with the issuance of Trust Securities by the Trust and (i) there shall have occurred any event that would constitute an Event of Default; (ii) the Company shall be in default with respect to its payment of any obligations under the Preferred Securities Guarantee relating to the Trust; or (iii) the Company shall have given notice of its election to defer payments of interest on such Debentures by extending the interest payment period as provided in this Indenture and such period, or any extension thereof, shall be continuing, then (a) the Company shall not declare or pay any 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 (other than (i) as a result of a reclassification of its capital stock for another class of its capital stock; or (ii) the conversion of the Company's Class A Convertible, Adjustable Rate Preferred Stock to the Company's common stock, par value $250.00 per share); (b) the Company shall not make any payment of interest, principal or premium, if any, or repay, repurchase or redeem any debt securities issued by the Company which rank pari passu with or junior to the Debentures; provided, however, that the Company may make payments pursuant to its obligations under the Preferred Securities Guarantee; and (c) the Company shall not redeem, purchase or acquire less than all of the outstanding Debentures or any of the Preferred Securities. SECTION 5.7. COVENANTS AS TO THE TRUST. For so long as such Trust Securities of the Trust remain outstanding, the Company shall (i) maintain 100% direct or indirect ownership of the Common Securities of the Trust; provided, however, that any permitted successor of the Company under this Indenture may succeed to the Company's ownership of the Common Securities; (ii) not voluntarily terminate, wind up or liquidate the Trust, except upon prior approval of the Federal Reserve if then so required under applicable capital guidelines or policies of the Federal Reserve and use its reasonable efforts to cause the Trust (a) to remain a business trust, except in connection with a distribution of Debentures, the redemption of all of the Trust Securities of the Trust or certain mergers, consolidations or amalgamations, each as permitted by the Trust Agreement; and (b) to otherwise continue not to be treated as an association taxable as a corporation or partnership for United States federal income tax purposes; and (iii) use its reasonable efforts to cause each holder of Trust Securities to be treated as owning an individual beneficial interest in the Debentures. In connection with the distribution of the Debentures to the holders of the Preferred Securities issued by the Trust upon a Dissolution Event, the Company shall use its best efforts to list such Debentures on The Nasdaq Stock Market's National Market or on such other exchange as the Preferred Securities are then listed. 20 28 SECTION 5.8. COVENANTS AS TO PURCHASES. Prior to March 31, 2002, the Company shall not purchase any Debentures, in whole or in part, from the Trust. ARTICLE VI. DEBENTUREHOLDERS' LISTS AND REPORTS BY THE COMPANY AND THE TRUSTEE SECTION 6.1. COMPANY TO FURNISH TRUSTEE NAMES AND ADDRESSES OF DEBENTUREHOLDERS. The Company shall furnish or cause to be furnished to the Trustee (a) on a monthly basis on each regular record date (as described in Section 2.5) a list, in such form as the Trustee may reasonably require, of the names and addresses of the holders of the Debentures as of such regular record date, provided that the Company shall not be obligated to furnish or cause to furnish such list at any time that the list shall not differ in any respect from the most recent list furnished to the Trustee by the Company; and (b) at such other times as the Trustee may request in writing within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; provided, however, that, in either case, no such list need be furnished if the Trustee shall be the Debenture Registrar. SECTION 6.2. PRESERVATION OF INFORMATION COMMUNICATIONS WITH DEBENTUREHOLDERS. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, all information as to the names and addresses of the holders of Debentures contained in the most recent list furnished to it as provided in Section 6.1 and as to the names and addresses of holders of Debentures received by the Trustee in its capacity as registrar for the Debentures (if acting in such capacity). (b) The Trustee may destroy any list furnished to it as provided in Section 6.1 upon receipt of a new list so furnished. (c) Debentureholders may communicate as provided in Section 312(b) of the Trust Indenture Act with other Debentureholders with respect to their rights under this Indenture or under the Debentures. SECTION 6.3. REPORTS BY 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 information, documents or reports pursuant to either of such sections, then to file with the Trustee and the Commission, in accordance with the rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports that may be required pursuant to Section 13 of the Exchange Act in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations. 21 29 (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 Debentureholders, as their names and addresses appear upon the Debenture Register, within 30 days after the filing thereof with the Trustee, such summaries of any information, documents and reports required to be filed by the Company pursuant to subsections (a) and (b) of this Section 6.3 as may be required by rules and regulations prescribed from time to time by the Commission. SECTION 6.4. REPORTS BY THE TRUSTEE. (a) On or before July 15 in each year in which any of the Debentures are Outstanding, the Trustee shall transmit by mail, first class postage prepaid, to the Debentureholders, as their names and addresses appear upon the Debenture Register, a brief report dated as of the preceding May 15, if and to the extent required under Section 313(a) of the Trust Indenture Act. (b) The Trustee shall comply with Section 313(b) and 313(c) of the Trust Indenture Act. (c) A copy of each such report shall, at the time of such transmission to Debentureholders, be filed by the Trustee with the Company, with each stock exchange upon which any Debentures are listed (if so listed) and also with the Commission. The Company agrees to notify the Trustee when any Debentures become listed on any stock exchange. ARTICLE VII. REMEDIES OF THE TRUSTEE AND DEBENTUREHOLDERS ON EVENT OF DEFAULT SECTION 7.1. EVENTS OF DEFAULT. (a) Whenever used herein with respect to the Debentures, "Event of Default" means any one or more of the following events that has occurred and is continuing: (i) the Company defaults in the payment of any installment of interest upon any of the Debentures, as and when the same shall become due and payable, and continuance of such default for a period of 30 days; provided, however, that a valid extension of an interest payment period by the Company in accordance with the terms of this Indenture shall not constitute a default in the payment of interest for this purpose; (ii) the Company defaults in the payment of the principal on the Debentures as and when the same shall become due and payable whether at maturity, upon redemption, by declaration or otherwise; provided, however, that a valid extension of the maturity of such Debentures in accordance with the terms of this Indenture shall not constitute a default in the payment of principal; 22 30 (iii) the Company fails to observe or perform any other of its covenants or agreements with respect to the Debentures for a period of 90 days after the date on which written notice of such failure, requiring the same to be remedied and stating that such notice is a "Notice of Default" hereunder, shall have been given to the Company by the Trustee, by registered or certified mail, or to the Company and the Trustee by the holders of at least 25% in principal amount of the Debentures at the time Outstanding; (iv) the Company pursuant to or within the meaning of any Bankruptcy Law (i) commences a voluntary case; (ii) consents to the entry of an order for relief against it in an involuntary case; (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property; or (iv) makes a general assignment for the benefit of its creditors; (v) a court of competent jurisdiction enters an order under any Bankruptcy Law that (i) is for relief against the Company in an involuntary case; (ii) appoints a Custodian of the Company for all or substantially all of its property; or (iii) orders the liquidation of the Company, and the order or decree remains unstayed and in effect for 90 days; or (vi) the Trust shall have voluntarily or involuntarily dissolved, wound-up its business or otherwise terminated its existence except in connection with (i) the distribution of Debentures to holders of Trust Securities in liquidation of their interests in the Trust; (ii) the redemption of all of the outstanding Trust Securities of the Trust; or (iii) certain mergers, consolidations or amalgamations, each as permitted by the Trust Agreement. (b) In each and every such case, unless the principal of all the Debentures shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Debentures then Outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by such Debentureholders) may declare the principal of all the Debentures to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due and payable, notwithstanding anything contained in this Indenture or in the Debentures. (c) At any time after the principal of the Debentures shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as hereinafter provided, the holders of a majority in aggregate principal amount of the Debentures then Outstanding hereunder, by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if: (i) the Company has paid or deposited with the Trustee a sum sufficient to pay all matured installments of interest upon all the Debentures and the principal of any and all Debentures that shall have become due otherwise than by acceleration (with interest upon such principal, and upon overdue installments of interest, at the rate per annum expressed in the Debentures to the date of such payment or deposit) and the amount payable to the Trustee under Section 9.6; and (ii) any and all Events of Default under this Indenture, other than the nonpayment of principal on Debentures that shall not have become due by their terms, shall have been remedied or waived as provided in Section 7.6. No such rescission and annulment shall extend to or shall affect any subsequent default or impair any right consequent thereon. (d) In case the Trustee shall have proceeded to enforce any right with respect to Debentures under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company and the Trustee shall be restored respectively to their former 23 31 positions and rights hereunder, and all rights, remedies and powers of the Company and the Trustee shall continue as though no such proceedings had been taken. SECTION 7.2. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE. (a) The Company covenants that (1) in case it shall default in the payment of any installment of interest on any of the Debentures, and such default shall have continued for a period of 90 Business Days; or (2) in case it shall default in the payment of the principal of any of the Debentures when the same shall have become due and payable, whether upon maturity of the Debentures or upon redemption or upon declaration or otherwise, then, upon demand of the Trustee, the Company shall pay to the Trustee, for the benefit of the holders of the Debentures, the whole amount that then shall have been become due and payable on all such Debentures for principal or interest, or both, as the case may be, with interest upon the overdue principal and (if the Debentures are held by the Trust or a trustee of the Trust, without duplication of any other amounts paid by the Trust or trustee in respect thereof) upon overdue installments of interest at the rate per annum expressed in the Debentures; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, and the amount payable to the Trustee under Section 9.7. (b) If the Company shall fail to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any action or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or other obligor upon the Debentures and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or other obligor upon the Debentures, wherever situated. (c) In case of any receivership, insolvency, liquidation, bankruptcy, reorganization, readjustment, arrangement, composition or judicial proceedings affecting the Company or the creditors or property 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 Debentures allowed for the entire amount due and payable by the Company under this Indenture at the date of institution of such proceedings and for any additional amount that may become due and payable by the Company after such date, and to collect and receive any moneys or other property payable or deliverable on any such claim, and to distribute the same after the deduction of the amount payable to the Trustee under Section 9.7; and any receiver, assignee or trustee in bankruptcy or reorganization is hereby authorized by each of the holders of the Debentures to make such payments to the Trustee, and, in the event that the Trustee shall consent to the making of such payments directly to such Debentureholders, to pay to the Trustee any amount due it under Section 9.7. (d) All rights of action and of asserting claims under this Indenture, or under any of the terms established with respect to Debentures, may be enforced by the Trustee without the possession of any of such Debentures, or the production thereof at any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for payment to the Trustee of any amounts due under Section 9.7, be for the ratable benefit of the holders of the Debentures. In case of an Event of Default hereunder, the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to 24 32 protect and enforce any of such rights, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Nothing contained herein shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Debentureholder any plan of reorganization, arrangement, adjustment or composition affecting the Debentures or the rights of any holder thereof or to authorize the Trustee to vote in respect of the claim of any Debentureholder in any such proceeding. SECTION 7.3. APPLICATION OF MONEYS COLLECTED. Any moneys collected by the Trustee pursuant to this Article VII with respect to the Debentures shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such moneys on account of principal or interest, upon presentation of the Debentures, and notation thereon the payment, if only partially paid, and upon surrender thereof if fully paid: FIRST: To the payment of costs and expenses of collection and of all amounts payable to the Trustee under Section 9.7; SECOND: To the payment of all Senior Indebtedness of the Company if and to the extent required by Article XVI; and THIRD: To the payment of the amounts then due and unpaid upon the Debentures for principal and interest, in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Debentures for principal and interest, respectively. SECTION 7.4. LIMITATION ON SUITS. (a) No holder of any Debenture shall have any right by virtue or by availing of any provision of this Indenture to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (i) such holder previously shall have given to the Trustee written notice of an Event of Default and of the continuance thereof with respect to the Debentures specifying such Event of Default, as hereinbefore provided; (ii) the holders of not less than 25% in aggregate principal amount of the Debentures then Outstanding shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as trustee hereunder; (iii) such holder or holders shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby; and (iv) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity, shall have failed to institute any such action, suit or proceeding; and (v) during such 60 day period, the holders of a majority in principal amount of the Debentures do not give the Trustee a direction inconsistent with the request. (b) Notwithstanding anything contained herein to the contrary or any other provisions of this Indenture, the right of any holder of the Debentures to receive payment of the principal of and interest on the Debentures, as therein provided, on or after the respective due dates expressed in such Debenture (or in the case of redemption, on the redemption date), or to institute suit for the enforcement of any such payment on or after such respective dates or redemption date, shall not be impaired or affected without 25 33 the consent of such holder and by accepting a Debenture hereunder it is expressly understood, intended and covenanted by the taker and holder of every Debenture with every other such taker and holder and the Trustee, that no one or more holders of Debentures shall have any right in any manner whatsoever by virtue or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of the holders of any other of such Debentures, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Debentures. For the protection and enforcement of the provisions of this Section 7.4, each and every Debentureholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. SECTION 7.5. RIGHTS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT WAIVER. (a) Except as otherwise provided in Section 2.9, all powers and remedies given by this Article VII to the Trustee or to the Debentureholders shall, to the extent permitted by law, be deemed cumulative and not exclusive of any other powers and remedies available to the Trustee or the holders of the Debentures, by judicial proceedings or otherwise, to enforce the performance or observance of the covenants and agreements contained in this Indenture or otherwise established with respect to such Debentures. (b) No delay or omission of the Trustee or of any holder of any of the Debentures to exercise any right or power accruing upon any Event of Default occurring and continuing as aforesaid shall impair any such right or power, or shall be construed to be a waiver of any such default or on acquiescence therein; and, subject to the provisions of Section 7.4, every power and remedy given by this Article VII or by law to the Trustee or the Debentureholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Debentureholders. SECTION 7.6. CONTROL BY DEBENTUREHOLDERS. The holders of a majority in aggregate principal amount of the Debentures at the time Outstanding, determined in accordance with Section 10.4, shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred on the Trustee; provided, however, that such direction shall not be in conflict with any rule of law or with this Indenture. Subject to the provisions of Section 9.1, the Trustee shall have the right to decline to follow any such direction if the Trustee in good faith shall, by a Responsible Officer or Officers of the Trustee, determine that the proceeding so directed would involve the Trustee in personal liability. The holders of a majority in aggregate principal amount of the Debentures at the time Outstanding affected thereby, determined in accordance with Section 10.4, may on behalf of the holders of all of the Debentures waive any past default in the performance of any of the covenants contained herein and its consequences, except (i) a default in the payment of the principal of or interest on, any of the Debentures as and when the same shall become due by the terms of such Debentures otherwise than by acceleration (unless such default has been cured and a sum sufficient to pay all matured installments of interest and principal has been deposited with the Trustee (in accordance with Section 7.1(c)); (ii) a default in the covenants contained in Section 5.6; or (iii) in respect of a covenant or provision hereof which cannot be modified or amended without the consent of the holder of each Outstanding Debenture affected; provided, however, that if the Debentures are held by the Trust or a trustee of the Trust, such waiver or modification to such waiver shall not be effective until the holders of a majority in liquidation preference of Trust Securities of the Trust shall have consented to such waiver or modification to such waiver; provided further, that if the consent of the holder of each Outstanding 26 34 Debenture is required, such waiver shall not be effective until each holder of the Trust Securities of the Trust shall have consented to such waiver. Upon any such waiver, the default covered thereby shall be deemed to be cured for all purposes of this Indenture and the Company, the Trustee and the holders of the Debentures shall be restored to their former positions and rights hereunder, respectively; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 7.7. UNDERTAKING TO PAY COSTS. All parties to this Indenture agree, and each holder of any Debentures by such holder's acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 7.8 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Debentureholder, or group of Debentureholders holding more than 10% in aggregate principal amount of the Outstanding Debentures, or to any suit instituted by any Debentureholder for the enforcement of the payment of the principal of or interest on the Debentures, on or after the respective due dates expressed in such Debenture or established pursuant to this Indenture. ARTICLE VIII. FORM OF DEBENTURE AND ORIGINAL ISSUE SECTION 8.1. FORM OF DEBENTURE. The Debenture and the Trustee's Certificate of Authentication to be endorsed thereon are to be substantially in the forms contained as Exhibit A attached hereto and incorporated herein by reference. SECTION 8.2. ORIGINAL ISSUE OF DEBENTURES. Debentures in the aggregate principal amount of $------------------- 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. 27 35 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 and after the curing of all Events of Default that may have occurred, shall undertake to perform with respect to the Debentures such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants shall be read into this Indenture against the Trustee. In case an Event of Default has occurred that has not been cured or waived, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) No provision of this Indenture shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) prior to the occurrence of an Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (i) the duties and obligations of the Trustee shall with respect to the Debentures be determined solely by the express provisions of this Indenture, and the Trustee shall not be liable with respect to the Debentures except for the performance of such duties and obligations as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (ii) in the absence of bad faith on the part of the Trustee, the Trustee may with respect to the Debentures conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (3) the Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the holders of not less than a majority in principal amount of the Debentures at the time Outstanding relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee under this Indenture with respect to the Debentures; and (4) none of the provisions contained in this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if there is reasonable ground for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Indenture or adequate indemnity against such risk is not reasonably assured to it. 28 36 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 the Debentures, as their names and addresses appear in the Debenture Register, notice of such default, unless such default shall have been cured or waived; provided, however, that, except in the case default in the payment of the principal or interest (including any Additional Interest) on any Debenture, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of the directors and/or Responsible Officers of the Trustee determines in good faith that the withholding of such notice is in the interests of the holders of such Debentures; and provided, further, that in the case of any default of the character specified in section 7.1(a)(iii), no such notice to holders of Debentures need be sent until at least 30 days after the occurrence thereof. For the purposes of this Section 9.2, the term "default" means any event which is, or after notice or lapse of time or both, would become, an Event of Default with respect to the Debentures. SECTION 9.3. CERTAIN RIGHTS OF TRUSTEE. Except as otherwise provided in Section 9.1: (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 Debentures at the time Outstanding; (d) The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted hereunder in good faith and in reliance thereon; (e) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Debentureholders, pursuant to the provisions of this Indenture, unless such Debentureholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that may be incurred therein or thereby; nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default (that has not been cured or waived) to exercise with respect to the Debentures such of the rights and powers vested in it by this Indenture, and to use the same degree of care and skill in their exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs; 29 37 (f) The Trustee shall not be liable for any action taken or omitted to be taken by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (g) The Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, security, or other papers or documents, unless requested in writing so to do by the holders of not less than a majority in principal amount of the Outstanding Debentures (determined as provided in Section 10.4); provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such costs, expenses or liabilities as a condition to so proceeding. The reasonable expense of every such examination shall be paid by the Company or, if paid by the Trustee, shall be repaid by the Company upon demand; and (h) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 9.4. TRUSTEE NOT RESPONSIBLE FOR RECITALS, ETC. (a) The Recitals contained herein and in the Debentures shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. (b) The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Debentures. (c) The Trustee shall not be accountable for the use or application by the Company of any of the Debentures or of the proceeds of such Debentures, or for the use or application of any moneys paid over by the Trustee in accordance with any provision of this Indenture, or for the use or application of any moneys received by any paying agent other than the Trustee. SECTION 9.5. MAY HOLD DEBENTURES. The Trustee or any paying agent or registrar for the Debentures, in its individual or any other capacity, may become the owner or pledgee of Debentures with the same rights it would have if it were not Trustee, paying agent or Debenture Registrar. SECTION 9.6. MONEYS HELD IN TRUST. Subject to the provisions of Section 13.5, all moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any moneys received by it hereunder except such as it may agree with the Company to pay thereon. 30 38 SECTION 9.7. COMPENSATION AND REIMBURSEMENT. (a) The Company covenants and agrees to pay to the Trustee, and the Trustee shall be entitled to, such reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust), as the Company and the Trustee may from time to time agree in writing, for all services rendered by it in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee, and, except as otherwise expressly provided herein, the Company shall pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all Persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify the Trustee (and its officers, agents, directors and employees) for, and to hold it harmless against, any loss, liability or expense incurred without negligence or bad faith on the part of the Trustee and arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim of liability in the premises. (b) The obligations of the Company under this Section 9.7 to compensate and indemnify the Trustee and to pay or reimburse the Trustee for expenses, disbursements and advances shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Debentures upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Debentures. SECTION 9.8. RELIANCE ON OFFICERS' CERTIFICATE. Except as otherwise provided in Section 9.1, whenever in the administration of the provisions of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting to take any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may, in the absence of negligence or bad faith on the part of the Trustee, be deemed to be conclusively proved and established by an Officers' Certificate delivered to the Trustee and such certificate, in the absence of negligence or bad faith on the part of the Trustee, shall be full warrant to the Trustee for any action taken, suffered or omitted to be taken by it under the provisions of this Indenture upon the faith thereof. SECTION 9.9. DISQUALIFICATION: CONFLICTING INTERESTS. If the Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and the Company shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. 31 39 SECTION 9.10. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY. There shall at all times be a Trustee with respect to the Debentures issued hereunder which shall at all times be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or other Person permitted to act as trustee by the Commission, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by federal, state, territorial, or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section 9.10, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. The Company may not, nor may any Person directly or indirectly controlling, controlled by, or under common control with the Company, serve as Trustee. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 9.10, the Trustee shall resign immediately in the manner and with the effect specified in Section 9.11. SECTION 9.11. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. (a) The Trustee or any successor hereafter appointed, may at any time resign by giving written notice thereof to the Company and by transmitting notice of resignation by mail, first class postage prepaid, to the Debentureholders, as their names and addresses appear upon the Debenture Register. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee with respect to Debentures by written instrument, in duplicate, executed by order of the Board of Directors, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within 30 days after the mailing of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee with respect to Debentures, or any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months may, subject to the provisions of Section 9.9, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (b) In case at any time any one of the following shall occur (i) the Trustee shall fail to comply with the provisions of Section 9.9 after written request therefor by the Company or by any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months; or (ii) the Trustee shall cease to be eligible in accordance with the provisions of Section 9.10 and shall fail to resign after written request therefor by the Company or by any such Debentureholder; or (iii) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or commence a voluntary bankruptcy proceeding, or a receiver of the Trustee or of its property shall be appointed or consented to, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Company may remove the Trustee with respect to all Debentures and appoint a successor trustee by written instrument, in duplicate, executed by order 32 40 of the Board of Directors, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 9.9, unless the Trustee's duty to resign is stayed as provided herein, any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months may, on behalf of that holder and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The holders of a majority in aggregate principal amount of the Debentures at the time Outstanding may at any time remove the Trustee by so notifying the Trustee and the Company and may appoint a successor Trustee with the consent of the Company. (d) Any resignation or removal of the Trustee and appointment of a successor trustee with respect to the Debentures pursuant to any of the provisions of this Section 9.11 shall become effective upon acceptance of appointment by the successor trustee as provided in Section 9.12. (e) Any successor trustee appointed pursuant to this Section 9.11 may be appointed with respect to the Debentures, and at any time there shall be only one Trustee with respect to the Debentures. SECTION 9.12. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. (a) In case of the appointment hereunder of a successor trustee with respect to the Debentures, every successor trustee so appointed shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Company or the successor trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor trustee all the rights, powers, and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor trustee all property and money held by such retiring Trustee hereunder. (b) Upon request of any successor trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor trustee all such rights, powers and trusts referred to in paragraph (a) of this Section 9.12. (c) No successor trustee shall accept its appointment unless at the time of such acceptance such successor trustee shall be qualified and eligible under this Article IX. (d) Upon acceptance of appointment by a successor trustee as provided in this Section 9.12, the Company shall transmit notice of the succession of such trustee hereunder by mail, first class postage prepaid, to the Debentureholders, as their names and addresses appear upon the Debenture Register. If the Company fails to transmit such notice within ten days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be transmitted at the expense of the Company. 33 41 SECTION 9.13. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided that such corporation shall be qualified under the provisions of Section 9.9 and eligible under the provisions of Section 9.10, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. In case any Debentures shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Debentures so authenticated with the same effect as if such successor Trustee had itself authenticated such Debentures. SECTION 9.14. PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE COMPANY. The Trustee shall comply with Section 311(a) of the Trust Indenture Act, excluding any creditor relationship described in Section 311(b) of the Trust Indenture Act. A Trustee who has resigned or been removed shall be subject to Section 311(a) of the Trust Indenture Act to the extent included therein. ARTICLE X. CONCERNING THE DEBENTUREHOLDERS SECTION 10.1. EVIDENCE OF ACTION BY HOLDERS. (a) Whenever in this Indenture it is provided that the holders of a majority or specified percentage in aggregate principal amount of the Debentures may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action the holders of such majority or specified percentage have joined therein may be evidenced by any instrument or any number of instruments of similar tenor executed by such holders of Debentures in Person or by agent or proxy appointed in writing. (b) If the Company shall solicit from the Debentureholders any request, demand, authorization, direction, notice, consent, waiver or other action, the Company may, at its option, as evidenced by an Officers' Certificate, fix in advance a record date for the determination of Debentureholders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other action, but the Company shall have no obligation to do so. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other action may be given before or after the record date, but only the Debentureholders of record at the close of business on the record date shall be deemed to be Debentureholders for the purposes of determining whether Debentureholders of the requisite proportion of Outstanding Debentures have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other action, and for that purpose the Outstanding Debentures shall be computed as of the record date; provided, however, that no such authorization, agreement or consent by such Debentureholders on the record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. 34 42 SECTION 10.2. PROOF OF EXECUTION BY DEBENTUREHOLDERS. Subject to the provisions of Section 9.1, proof of the execution of any instrument by a Debentureholder (such proof shall not require notarization) or his agent or proxy and proof of the holding by any Person of any of the Debentures shall be sufficient if made in the following manner: (a) The fact and date of the execution by any such Person of any instrument may be proved in any reasonable manner acceptable to the Trustee. (b) The ownership of Debentures shall be proved by the Debenture Register of such Debentures or by a certificate of the Debenture Registrar thereof. (c) The Trustee may require such additional proof of any matter referred to in this Section 10.2 as it shall deem necessary. SECTION 10.3. WHO MAY BE DEEMED OWNERS. Prior to the due presentment for registration of transfer of any Debenture, the Company, the Trustee, any paying agent, any Authenticating Agent and any Debenture Registrar may deem and treat the Person in whose name such Debenture shall be registered upon the books of the Company as the absolute owner of such Debenture (whether or not such Debenture shall be overdue and notwithstanding any notice of ownership or writing thereon made by anyone other than the Debenture Registrar) for the purpose of receiving payment of or on account of the principal of and interest on such Debenture (subject to Section 2.3) and for all other purposes; and neither the Company nor the Trustee nor any paying agent nor any Authenticating Agent nor any Debenture Registrar shall be affected by any notice to the contrary. SECTION 10.4. CERTAIN DEBENTURES OWNED BY COMPANY DISREGARDED. In determining whether the holders of the requisite aggregate principal amount of Debentures have concurred in any direction, consent or waiver under this Indenture, the Debentures that are owned by the Company or any other obligor on the Debentures or by any Person directly or indirectly controlling or controlled by or under common control with the Company or any other obligor on the Debentures shall be disregarded and deemed not to be Outstanding for the purpose of any such determination, except that for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver, only Debentures that the Trustee actually knows are so owned shall be so disregarded. The Debentures so owned that have been pledged in good faith may be regarded as Outstanding for the purposes of this Section 10.4, if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right so to act with respect to such Debentures and that the pledgee is not a Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any such other obligor. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. SECTION 10.5. ACTIONS BINDING ON FUTURE DEBENTUREHOLDERS. At any time prior to (but not after) the evidencing to the Trustee, as provided in Section 10.1, of the taking of any action by the holders of the majority or percentage in aggregate principal amount of the Debentures specified in this Indenture in connection with such action, any holder of a Debenture that is shown by the evidence to be included in the Debentures the holders of which have consented to such 35 43 action may, by filing written notice with the Trustee, and upon proof of holding as provided in Section 10.2, revoke such action so far as concerns such Debenture. Except as aforesaid any such action taken by the holder of any Debenture shall be conclusive and binding upon such holder and upon all future holders and owners of such Debenture, and of any Debenture issued in exchange therefor, on registration of transfer thereof or in place thereof, irrespective of whether or not any notation in regard thereto is made upon such Debenture. Any action taken by the holders of the majority or percentage in aggregate principal amount of the Debentures specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the holders of all the Debentures. ARTICLE XI. SUPPLEMENTAL INDENTURES SECTION 11.1. SUPPLEMENTAL INDENTURES WITHOUT THE CONSENT OF DEBENTUREHOLDERS. In addition to any supplemental indenture otherwise authorized by this Indenture, the Company and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as then in effect), without the consent of the Debentureholders, for one or more of the following purposes: (a) to cure any ambiguity, defect, or inconsistency herein, in the Debentures; (b) to comply with Article X; (c) to provide for uncertificated Debentures in addition to or in place of certificated Debentures; (d) to add to the covenants of the Company for the benefit of the holders of all or any of the Debentures or to surrender any right or power herein conferred upon the Company; (e) to add to, delete from, or revise the conditions, limitations, and restrictions on the authorized amount, terms, or purposes of issue, authentication, and delivery of Debentures, as herein set forth; (f) to make any change that does not adversely affect the rights of any Debentureholder in any material respect; (g) to provide for the issuance of and establish the form and terms and conditions of the Debentures, to establish the form of any certifications required to be furnished pursuant to the terms of this Indenture or of the Debentures, or to add to the rights of the holders of the Debentures; or (h) qualify or maintain the qualification of this Indenture under the Trust Indenture Act. The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into any such supplemental indenture that affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section 11.1 may be executed by the Company and the Trustee without the consent of the holders of any of the Debentures at the time Outstanding, notwithstanding any of the provisions of Section 11.2. 36 44 SECTION 11.2. SUPPLEMENTAL INDENTURES WITH CONSENT OF DEBENTUREHOLDERS. With the consent (evidenced as provided in Section 10.1) of the holders of not less than a majority in aggregate principal amount of the Debentures at the time Outstanding, the Company, when authorized by Board Resolutions, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act as then in effect) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner not covered by Section 11.1 the rights of the holders of the Debentures under this Indenture; provided, however, that no such supplemental indenture shall without the consent of the holders of each Debenture then Outstanding and affected thereby, (i) extend the fixed maturity of any Debentures, reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, without the consent of the holder of each Debenture so affected; or (ii) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture; provided further, that if the Debentures are held by the Trust or a trustee of the Trust, such supplemental indenture shall not be effective until the holders of a majority in liquidation preference of Trust Securities of the Trust shall have consented to such supplemental indenture; provided further, that if the consent of the holder of each Outstanding Debenture is required, such supplemental indenture shall not be effective until each holder of the Trust Securities of the Trust shall have consented to such supplemental indenture. It shall not be necessary for the consent of the Debentureholders affected thereby under this Section 11.2 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. SECTION 11.3. EFFECT OF SUPPLEMENTAL INDENTURES. Upon the execution of any supplemental indenture pursuant to the provisions of this Article XI, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Debentures shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. SECTION 11.4. DEBENTURES AFFECTED BY SUPPLEMENTAL INDENTURES. Debentures affected by a supplemental indenture, authenticated and delivered after the execution of such supplemental indenture pursuant to the provisions of this Article XI, may bear a notation in form approved by the Company, provided such form meets the requirements of any exchange upon which the Debentures may be listed, as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Debentures so modified as to conform, in the opinion of the Board of Directors of the Company, to any modification of this Indenture contained in any such supplemental indenture may be prepared by the Company, authenticated by the Trustee and delivered in exchange for the Debentures then Outstanding. SECTION 11.5. EXECUTION OF SUPPLEMENTAL INDENTURES. (a) Upon the request of the Company, accompanied by their Board Resolutions authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the 37 45 consent of Debentureholders required to consent thereto as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion but shall not be obligated to enter into such supplemental indenture. The Trustee, subject to the provisions of Sections 9.1, may receive an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article XI is authorized or permitted by, and conforms to, the terms of this Article XI and that it is proper for the Trustee under the provisions of this Article XI to join in the execution thereof. (b) Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section 11.5, the Trustee shall transmit by mail, first class postage prepaid, a notice, setting forth in general terms the substance of such supplemental indenture, to the Debentureholders as their names and addresses appear upon the Debenture Register. Any failure of the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. ARTICLE XII. SUCCESSOR CORPORATION SECTION 12.1. COMPANY MAY CONSOLIDATE, ETC. Nothing contained in this Indenture or in any of the Debentures shall prevent any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company, as the case may be), or successive consolidations or mergers in which the Company, as the case may be, or its successor or successors shall be a party or parties, or shall prevent any sale, conveyance, transfer or other disposition of the property of the Company, as the case may be, or its successor or successors as an entirety, or substantially as an entirety, to any other corporation (whether or not affiliated with the Company, as the case may be, or its successor or successors) authorized to acquire and operate the same; provided, however, the Company hereby covenants and agrees that, (i) upon any such consolidation, merger, sale, conveyance, transfer or other disposition, the due and punctual payment, in the case of the Company, of the principal of and interest on all of the Debentures, according to their tenor and the due and punctual performance and observance of all the covenants and conditions of this Indenture to be kept or performed by the Company as the case may be, shall be expressly assumed, by supplemental indenture (which shall conform to the provisions of the Trust Indenture Act, as then in effect) satisfactory in form to the Trustee executed and delivered to the Trustee by the entity formed by such consolidation, or into which the Company, as the case may be, shall have been merged, or by the entity which shall have acquired such property; (ii) in case the Company consolidates with or merges into another Person or conveys or transfers its properties and assets substantially 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, an 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 38 46 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 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 Debentures. (b) In case of any such consolidation, merger, sale, conveyance, transfer or other disposition such changes in phraseology and form (but not in substance) may be made in the Debentures thereafter to be issued as may be appropriate. (c) Nothing contained in this Indenture or in any of the Debentures shall prevent the Company from merging into itself or acquiring by purchase or otherwise all or any part of the property of any other Person (whether or not affiliated with the Company). SECTION 12.3. EVIDENCE OF CONSOLIDATION, ETC. TO TRUSTEE. The Trustee, subject to the provisions of Section 9.1, may receive an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale, conveyance, transfer or other disposition, and any such assumption, comply with the provisions of this Article XII. ARTICLE XIII. SATISFACTION AND DISCHARGE SECTION 13.1. SATISFACTION AND DISCHARGE OF INDENTURE. If at any time: (a) the Company shall have delivered to the Trustee for cancellation all Debentures theretofore authenticated (other than any Debentures that shall have been destroyed, lost or stolen and that shall have been replaced or paid as provided in Section 2.9) and Debentures for whose payment money or Governmental Obligations have theretofore been deposited in trust or segregated and held in trust by the Company (and thereupon repaid to the Company or discharged from such trust, as provided in Section 13.5); or (b) all such Debentures not theretofore delivered to the Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption, and the Company shall deposit or cause to be deposited with the Trustee as trust funds the entire amount in moneys or Governmental Obligations sufficient or a combination thereof, sufficient in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay at maturity or upon redemption all Debentures not theretofore delivered to the Trustee for cancellation, including principal and interest due or to become due to such date of maturity or date fixed for redemption, as the case may be, and if the Company shall also pay or cause to be paid all other sums payable hereunder by the Company; then this Indenture shall thereupon cease to be of further effect except for the provisions of Sections 2.3, 2.7, 2.9, 5.1, 5.2, 5.3 and 9.10, that shall survive until the date of maturity or redemption date, as the case may be, and Sections 9.6 and 13.5, that shall survive to such date and thereafter, and the Trustee, on demand of the Company and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture. 39 47 SECTION 13.2. DISCHARGE OF OBLIGATIONS. If at any time all Debentures not heretofore delivered to the Trustee for cancellation or that have not become due and payable as described in Section 13.1 shall have been paid by the Company by depositing irrevocably with the Trustee as trust funds moneys or an amount of Governmental Obligations sufficient to pay at maturity or upon redemption all Debentures not theretofore delivered to the Trustee for cancellation, including principal and interest due or to become due to such date of maturity or date fixed for redemption, as the case may be, and if the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then after the date such moneys or Governmental Obligations, as the case may be, are deposited with the Trustee, the obligations of the Company under this Indenture shall cease to be of further effect except for the provisions of Sections 2.3, 2.7, 2.9, 5.1, 5.2, 5.3, 9.6, 9.10 and 13.5 hereof that shall survive until such Debentures shall mature and be paid. Thereafter, Sections 9.6 and 13.5 shall survive. SECTION 13.3. DEPOSITED MONEYS TO BE HELD IN TRUST. All monies or Governmental Obligations deposited with the Trustee pursuant to Sections 13.1 or 13.2 shall be held in trust and shall be available for payment as due, either directly or through any paying agent (including the Company acting as its own paying agent), to the holders of the Debentures for the payment or redemption of which such moneys or Governmental Obligations have been deposited with the Trustee. SECTION 13.4. PAYMENT OF MONIES HELD BY PAYING AGENTS. In connection with the satisfaction and discharge of this Indenture, all moneys or Governmental Obligations then held by any paying agent under the provisions of this Indenture shall, upon demand of the Company, be paid to the Trustee and thereupon such paying agent shall be released from all further liability with respect to such moneys or Governmental Obligations. SECTION 13.5. REPAYMENT TO COMPANY. Any monies or Governmental Obligations deposited with any paying agent or the Trustee, or then held by the Company in trust, for payment of principal of or interest on the Debentures that are not applied but remain unclaimed by the holders of such Debentures for at least two years after the date upon which the principal of or interest on such Debentures shall have respectively become due and payable, shall be repaid to the Company, as the case may be, on May 31 of each year or (if then held by the Company) shall be discharged from such trust; and thereupon the paying agent and the Trustee shall be released from all further liability with respect to such moneys or Governmental Obligations, and the holder of any of the Debentures entitled to receive such payment shall thereafter, as an unsecured general creditor, look only to the Company for the payment thereof. 40 48 ARTICLE XIV. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS SECTION 14.1. NO RECOURSE. No recourse under or upon any obligation, covenant or agreement of this Indenture, or of the Debentures, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, stockholder, officer or director, past, present or future as such, of the Company or of any predecessor or successor corporation, either directly or through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, stockholders, officers or directors as such, of the Company or of any predecessor or successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, 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 Debentures or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of such Debentures. ARTICLE XV. MISCELLANEOUS PROVISIONS SECTION 15.1. EFFECT ON SUCCESSORS AND ASSIGNS. All the covenants, stipulations, promises and agreements in this Indenture contained by or on behalf of the Company shall bind their respective successors and assigns, whether so expressed or not. SECTION 15.2. ACTIONS BY SUCCESSOR. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the corresponding board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company. SECTION 15.3. SURRENDER OF COMPANY POWERS. The Company by instrument in writing executed by appropriate authority of its Board of Directors and delivered to the Trustee may surrender any of the powers reserved to the Company, and thereupon such power so surrendered shall terminate both as to the Company, as the case may be, and as to any successor corporation. 41 49 SECTION 15.4. NOTICES. Except as otherwise expressly provided herein any notice or demand that by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Debentures to or on the Company may be given or served by being deposited first class postage prepaid in a post-office letterbox addressed (until another address is filed in writing by the Company with the Trustee), as follows: c/o First Banks, Inc., 11901 Olive Blvd., St. Louis, Missouri 63141, Attention: Allen H. Blake, Executive Vice President. Any notice, election, request or demand by the Company or any Debentureholder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made in writing at the Corporate Trust Office of the Trustee. SECTION 15.5. GOVERNING LAW. This Indenture and each Debenture shall be deemed to be a contract made under the internal laws of the State of Missouri and for all purposes shall be construed in accordance with the laws of said State. SECTION 15.6. TREATMENT OF DEBENTURES AS DEBT. It is intended that the Debentures shall be treated as indebtedness and not as equity for federal income tax purposes. The provisions of this Indenture shall be interpreted to further this intention. SECTION 15.7. COMPLIANCE CERTIFICATES AND OPINIONS. (a) Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or demand, no additional certificate or opinion need be furnished. (b) Each certificate or opinion of the Company provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant in this Indenture shall include (1) a statement that the Person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, he has made such examination or investigation as, in the opinion of such Person, is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. SECTION 15.8. PAYMENTS ON BUSINESS DAYS. In any case where the date of maturity of interest or principal of any Debenture or the date of redemption of any Debenture shall not be a Business Day, then payment of interest or principal may (subject to Section 2.5) be made on the next succeeding Business Day with the same force and effect as if made on the nominal date of maturity or redemption, and no interest shall accrue for the period after such nominal date. 42 50 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 Debentures shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Indenture or of the Debentures, but this Indenture and the Debentures shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. SECTION 15.12. ASSIGNMENT. The Company shall have the right at all times to assign any of its respective rights or obligations under this Indenture to a direct or indirect wholly owned Subsidiary of the Company, provided that, in the event of any such assignment, the Company shall remain liable for all such obligations. Subject to the foregoing, this Indenture is binding upon and inures to the benefit of the parties thereto and their respective successors and assigns. This Indenture may not otherwise be assigned by the parties thereto. SECTION 15.13. ACKNOWLEDGMENT OF RIGHTS. The Company acknowledges that, with respect to any Debentures held by the Trust or a trustee of the Trust, if the Property Trustee fails to enforce its rights under this Indenture as the holder of the Debentures held as the assets of the Trust, any holder of Preferred Securities may institute legal proceedings directly against the Company to enforce such Property Trustee's rights under this Indenture without first instituting any legal proceedings against such Property Trustee or any other person or entity. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and such event is attributable to the failure of the Company to pay interest or principal on the Debentures on the date such interest or principal is otherwise payable (or in the case of redemption, on the redemption date), the Company acknowledges that a holder of Preferred Securities may directly institute a proceeding for enforcement of payment to such holder of the principal of or interest on the Debentures having a principal amount equal to the aggregate liquidation amount of the Preferred Securities of such holder on or after the respective due date specified in the Debentures. 43 51 ARTICLE XVI. SUBORDINATION OF DEBENTURES SECTION 16.1. AGREEMENT TO SUBORDINATE. The Company covenants and agrees, and each holder of Debentures issued hereunder by such holder's acceptance thereof likewise covenants and agrees, that all Debentures shall be issued subject to the provisions of this Article XVI; and each holder of a Debenture, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment by the Company of the principal of and interest on all Debentures issued hereunder shall, to the extent and in the manner hereinafter set forth, be subordinated and junior in right of payment to the prior payment in full of all Senior Debt, Subordinated Debt and Additional Senior Obligations (collectively, "Senior Indebtedness") to the extent provided herein, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article XVI shall prevent the occurrence of any default or Event of Default hereunder. SECTION 16.2. DEFAULT ON SENIOR DEBT, SUBORDINATED DEBT OR ADDITIONAL SENIOR OBLIGATIONS. In the event and during the continuation of any default by the Company in the payment of principal, premium, interest or any other payment due on any Senior Indebtedness of the Company, or in the event that the maturity of any Senior Indebtedness of the Company has been accelerated because of a default, then, in either case, no payment shall be made by the Company with respect to the principal (including redemption payments) of or interest on the Debentures. In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding sentence of this Section 16.2, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that the holders of the Senior Indebtedness (or their representative or representatives or a trustee) notify the Trustee in writing within 90 days of such payment of the amounts then due and owing on the Senior Indebtedness and only the amounts specified in such notice to the Trustee shall be paid to the holders of Senior Indebtedness. SECTION 16.3. LIQUIDATION; DISSOLUTION; BANKRUPTCY. (a) Upon any payment by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution or winding-up or liquidation or reorganization of the Company, whether voluntary or involuntary or in bankruptcy, insolvency, receivership or other proceedings, all amounts due upon all Senior Indebtedness of the Company shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Company on account of the principal or interest on the Debentures; and upon any such dissolution or winding-up or liquidation or reorganization, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the holders of the Debentures or the Trustee would be entitled to receive from the Company, except for the provisions of this Article XVI, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the holders of the Debentures or by the Trustee under this Indenture if received by them or it, directly to the holders of Senior Indebtedness of the Company (pro rata to such holders on the basis of the respective amounts of Senior Indebtedness held by such holders, as calculated by the 44 52 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. (b) In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing, shall be received by the Trustee before all Senior Indebtedness of the Company is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Senior Indebtedness may have been issued, and their respective interests may appear, as calculated by the Company, for application to the payment of all Senior Indebtedness of the Company, as the case may be, remaining unpaid to the extent necessary to pay such Senior Indebtedness in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of such Senior Indebtedness. (c) For purposes of this Article XVI, the words "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article XVI with respect to the Debentures to the payment of all Senior Indebtedness of the Company, as the case may be, that may at the time be outstanding, provided that (i) such Senior Indebtedness is assumed by the new corporation, if any, resulting from any such reorganization or readjustment; and (ii) the rights of the holders of such Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another corporation or the liquidation or dissolution of the Company following the conveyance or transfer of its property as an entirety, or substantially as an entirety, to another corporation upon the terms and conditions provided for in Article XII shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 16.3 if such other corporation shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Article XII. Nothing in Section 16.2 or in this Section 16.3 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 9.7. SECTION 16.4. SUBROGATION. (a) Subject to the payment in full of all Senior Indebtedness of the Company, the rights of the holders of the Debentures shall be subrogated to the rights of the holders of such Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company, as the case may be, applicable to such Senior Indebtedness until the principal of and interest on the Debentures shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of such Senior Indebtedness of any cash, property or securities to which the holders of the Debentures or the Trustee would be entitled except for the provisions of this Article XVI, and no payment over pursuant to the provisions of this Article XVI to or for the benefit of the holders of such Senior Indebtedness by holders of the Debentures or the Trustee, shall, as between the Company, its creditors other than holders of Senior Indebtedness of the Company, and the holders of the Debentures, be deemed to be a payment by the Company to or on account of such Senior Indebtedness. It is understood that the provisions of 45 53 this Article XVI are and are intended solely for the purposes of defining the relative rights of the holders of the Debentures, on the one hand, and the holders of such Senior Indebtedness on the other hand. (b) Nothing contained in this Article XVI or elsewhere in this Indenture or in the Debentures is intended to or shall impair, as between the Company, its creditors (other than the holders of Senior Indebtedness of the Company), and the holders of the Debentures, the obligation of the Company, which is absolute and unconditional, to pay to the holders of the Debentures the principal of and interest on the Debentures as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the holders of the Debentures and creditors of the Company, as the case may be, other than the holders of Senior Indebtedness of the Company, as the case may be, nor shall anything herein or therein prevent the Trustee or the holder of any Debenture from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article XVI of the holders of such Senior Indebtedness in respect of cash, property or securities of the Company, as the case may be, received upon the exercise of any such remedy. (c) Upon any payment or distribution of assets of the Company referred to in this Article XVI, the Trustee, subject to the provisions of Article IX, and the holders of the Debentures shall be entitled to conclusively rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the holders of the Debentures, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Company, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article XVI. SECTION 16.5. TRUSTEE TO EFFECTUATE SUBORDINATION. Each holder of Debentures by such holder's acceptance thereof authorizes and directs the Trustee on such holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article XVI and appoints the Trustee such holder's attorney-in-fact for any and all such purposes. SECTION 16.6. NOTICE BY THE COMPANY. (a) The Company shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Company that would prohibit the making of any payment of monies to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article XVI. Notwithstanding the provisions of this Article XVI or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of monies to or by the Trustee in respect of the Debentures pursuant to the provisions of this Article XVI, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company or a holder or holders of Senior Indebtedness or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Section 9.1, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 16.6 at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of or interest on any Debenture), then, anything herein contained 46 54 to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date. (b) The Trustee, subject to the provisions of Section 9.1, shall be entitled to conclusively rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness of the Company (or a trustee on behalf of such holder) to establish that such notice has been given by a holder of such Senior Indebtedness or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of such Senior Indebtedness to participate in any payment or distribution pursuant to this Article XVI, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article XVI, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 16.7. RIGHTS OF THE TRUSTEE; HOLDERS OF SENIOR INDEBTEDNESS. (a) The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article XVI in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. The Trustee's right to compensation and reimbursement of expenses as set forth in Section 9.7 shall not be subject to the subordination provisions of the Article XVI. (b) With respect to the holders of Senior Indebtedness of the Company, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article XVI, and no implied covenants or obligations with respect to the holders of such Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of such Senior Indebtedness and, subject to the provisions of Section 9.1, the Trustee shall not be liable to any holder of such Senior Indebtedness if it shall pay over or deliver to holders of Debentures, the Company or any other Person money or assets to which any holder of such Senior Indebtedness shall be entitled by virtue of this Article XVI or otherwise. SECTION 16.8. SUBORDINATION MAY NOT BE IMPAIRED. (a) No right of any present or future holder of any Senior Indebtedness of the Company to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or otherwise be charged with. (b) Without in any way limiting the generality of 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 47 55 one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Senior Indebtedness, or otherwise amend or supplement in any manner such Senior Indebtedness or any instrument evidencing the same or any agreement under which such Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Senior Indebtedness; (iii) release any Person liable in any manner for the collection of such Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. FIRST BANKS, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Attest: - ---------------------------- STATE STREET BANK AND TRUST COMPANY, as trustee By:--------------------------------- Name: ----------------------------- Title: ---------------------------- Attest: - ---------------------------- 48 56 STATE OF MISSOURI ) ) ss: COUNTY OF ST. LOUIS ) On this ------- day of -------------------------------, 199---, before me appeared ------------------------------, to me personally known, who, being by me duly sworn, did say that he is the ---------------------------- of FIRST BANKS, INC., and that the seal affixed to said instrument is the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation by authority of its board of directors and said ------------------------------, acknowledged said instrument to be the free act and deed of said corporation. In testimony whereof I have hereunto set my hand and affixed my official seal at my office in said county and state the day and year last above written. ------------------------------------------ Notary Public [seal] My term expires: ----------------- STATE OF MASSACHUSETTS ) ) ss: CITY OF ------------ ) On this ------- day of -------------------------------, 199---, before me appeared ------------------------------, to me personally known, who, being by me duly sworn, did say that he is the ---------------------------- of STATE STREET BANK AND TRUST COMPANY, and that the seal affixed to said instrument is the corporate seal of said corporation, and that said instrument was signed and sealed in behalf of said corporation by authority of its board of directors and said ------------------------------, acknowledged said instrument to be the free act and deed of said corporation. In testimony whereof I have hereunto set my hand and affixed my official seal at my office in said county and state the day and year last above written. ------------------------------- Notary Public [seal] My term expires: -------------- 49 57 EXHIBIT A (FORM OF FACE OF DEBENTURE) No. ----------------------------- $ ------------------------ CUSIP No. ------------------------ FIRST BANKS, INC. ---% SUBORDINATED DEBENTURE DUE MARCH 31, 2027 First Banks, Inc., a Missouri 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 ---------, 2027 (the "Stated Maturity"), and to pay interest on said principal sum from - ------------, 1997, or from the most recent interest payment date (each such date, an "Interest Payment Date") to which interest has been paid or duly provided for, quarterly (subject to deferral as set forth herein) in arrears on March 31, June 30, September 30 and December 31 of each year commencing March 31, 1997, at the rate of ---% per annum until the principal hereof shall have become due and payable, and on any overdue principal and (without duplication on any overdue installment of interest at the same rate per annum compounded quarterly. The amount of interest payable on any Interest Payment Date shall be computed on the basis of a 360-day year of twelve 30-day months. In the event that any date on which interest is payable on this Debenture is not a business day, then payment of interest payable on such date shall be made on the next succeeding day that is a business day (and without any interest or other payment in respect of any such delay), except that, if such business day is in the next succeeding calendar year, such payment shall be made on the immediately preceding business day, in each case with the same force and effect as if made on such date. The interest installment so payable, and punctually paid or duly provided for, on any Interest Payment Date shall, as provided in the Indenture, be paid to the person in whose name this Debenture (or one or more Predecessor Debentures, as defined in 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 Debentures) 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 the 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 the interest on this Debenture shall be payable Exhibit A-1 58 at the office or agency of the Trustee maintained for that purpose in any coin or currency of the United States of America that at the time of payment is legal tender for payment of public and private debts; provided, however, that payment of interest may be made at the option of the Company by check mailed to the registered holder at such address as shall appear in the Debenture Register. Notwithstanding the foregoing, so long as the holder of this Debenture is the Property Trustee, the payment of the principal of and interest on this Debenture shall be made at such place and to such account as may be designated by the Trustee. The Stated Maturity may be shortened at any time by the Company to any date not earlier than -----------------, 2002, subject to the Company having received prior approval of the Federal Reserve if then required under applicable capital guidelines or policies of the Federal Reserve. Such date may also be extended at any time at the election of the Company for one or more periods, but in no event to a date later than - ------------------------, 2046, subject to certain limitations described in the Indenture. The indebtedness evidenced by this Debenture is, to the extent provided in the Indenture, subordinate and junior in right of payment to the prior payment in full of all Senior Indebtedness, 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. 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 ---------------------- FIRST BANKS, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- Attest: By: ----------------------------- Name: -------------------------- Title: ------------------------- Exhibit A-2 59 [FORM OF CERTIFICATE OF AUTHENTICATION] CERTIFICATE OF AUTHENTICATION This is one of the Debentures described in the within-mentioned Indenture. Dated: STATE STREET BANK AND TRUST COMPANY, --------------------------------------- as Trustee or Authentication Agent By ----------------------------------- By ---------------------------- Authorized Signatory Exhibit A-3 60 [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 January ---, 1997 (the "Indenture") duly executed and delivered between the Company and State Street Bank and Trust Company, as Trustee (the "Trustee"), to which Indenture reference is hereby made for a description of the rights, limitations of rights, obligations, duties and immunities thereunder of the Trustee, the Company and the holders of the Debentures. The Debentures are limited in aggregate principal amount as specified in the Indenture. Because of the occurrence and continuation of a Special Event, in certain circumstances, this Debenture may become due and payable at the principal amount together with any interest accrued thereon (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 --------, 2002 (an "Optional Redemption"), or at any time in certain circumstances upon the occurrence of a Special Event, at a Redemption Price equal to 100% of the principal amount plus any accrued but unpaid interest, to the date of such redemption. Any redemption pursuant to this paragraph shall be made upon not less than 30 days nor more than 60 days notice, at the Redemption Price. If the Debentures are only partially redeemed by the Company pursuant to an Optional Redemption, the Debentures shall be redeemed pro rata or by lot or by any other method utilized by the Trustee. In the event of redemption of this Debenture in part only, a new Debenture or Debentures for the unredeemed portion hereof shall be issued in the name of the holder hereof upon the cancellation hereof. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of not less than a majority in aggregate principal amount of the Debentures at the time outstanding, as defined in the Indenture, to execute supplemental indentures for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any supplemental indenture or of modifying in any manner the rights of the holders of the Debentures; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of the Debentures except as provided in the Indenture, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, without the consent of the holder of each Debenture so affected; or (ii) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of each Debenture then outstanding and affected thereby. The Indenture also contains provisions permitting the holders of a majority in aggregate principal amount of the Debentures at the time outstanding, on behalf of all of the holders of the Debentures, to waive any past default in the performance of any of the Exhibit A-4 61 covenants contained in the Indenture, or established pursuant to the Indenture, and its consequences, except a default in the payment of the principal of or interest on any of the Debentures. Any such consent or waiver by the registered holder of this Debenture (unless revoked as provided in the Indenture) shall be conclusive and binding upon such holder and upon all future holders and owners of this Debenture and of any Debenture issued in exchange herefor or in place hereof (whether by registration of transfer or not any notation of such consent or waiver is made upon this Debenture. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal and 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 (each, an "Extended Interest Payment Period"), at the end of which period the Company shall pay all interest then accrued and unpaid (together with interest thereon at the rate specified for the Debentures to the extent that payment of such interest is enforceable under applicable law). Before the termination of any such Extended Interest Payment Period, the Company may further extend such Extended Interest Payment Period, provided that such Extended Interest Payment Period together with all such further extensions thereof shall not exceed 20 consecutive quarters. At the termination of any such Extended Interest Payment Period and upon the payment of all accrued and unpaid interest and any additional amounts then due, the Company may commence a new Extended Interest Payment Period. As provided in the Indenture and subject to certain limitations therein set forth, this Debenture is transferable by the registered holder hereof on the Debenture Register of the Company, upon surrender of this Debenture for registration of transfer at the office or agency of the Trustee accompanied by a written instrument or instruments of transfer in form satisfactory to the Company or the Trustee duly executed by the registered holder hereof or his attorney duly authorized in writing, and thereupon one or more new Debentures of authorized denominations and for the same aggregate principal amount shall be issued to the designated transferee or transferees. No service charge shall be made for any such transfer, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in relation thereto. Prior to due presentment for registration of transfer of this Debenture, the Company, the Trustee, any paying agent and the Debenture Registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon made by anyone other than the Debenture Registrar) for the purpose of receiving payment of or on account of the principal hereof and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Debentures Registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture, against any incorporator, stockholder, officer or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issuance hereof, expressly waived and released. Exhibit A-5 62 The Debentures are issuable only in registered form without coupons in denominations of $25 and any integral multiple thereof. All terms used in this Debenture that are defined in the Indenture shall have the meanings assigned to them in the Indenture. Exhibit A-6 EX-4.3 4 CERTIFICATE OF TRUST OF FIRST PREFERRED CAPITAL TRUST 1 EXHIBIT 4.3 2 CERTIFICATE OF TRUST OF FIRST PREFERRED CAPITAL TRUST THIS CERTIFICATE OF TRUST OF FIRST PREFERRED CAPITAL TRUST (the "Trust"), dated as of December 12, 1996, is being duly executed and filed by WILMINGTON TRUST COMPANY, a Delaware banking corporation, JAMES F. DIERBERG, ALLEN H. BLAKE and LAURENCE J. BROST, 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 FIRST PREFERRED CAPITAL TRUST. 2. DELAWARE TRUSTEE. The name and business address of the trustee of the Trust in the State of Delaware is Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration. 3. EFFECTIVE DATE. This Certificate of Trust shall be effective on December 16, 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: /s/ Emmett R. Harmon ---------------------------- Name: Emmett R. Harmon Title: Vice President /s/ James F. Dierberg ------------------------------- JAMES F. DIERBERG as Trustee /s/ Allen H. Blake ------------------------------- ALLEN H. BLAKE as Trustee /s/ Laurence J. Brost ------------------------------- LAURENCE J. BROST as Trustee EX-4.4 5 TRUST AGREEMENT OF FIRST PREFERRED CAPITAL TRUST 1 EXHIBIT 4.4 2 TRUST AGREEMENT This TRUST AGREEMENT, dated as of December 12, 1996 (this "Trust Agreement"), among (i) First Banks, Inc., a Missouri corporation (the "Depositor"), (ii) Wilmington Trust Company, a Delaware banking corporation, as trustee, and (iii) James F. Dierberg, Allen H. Blake and Laurence J. Brost, each an individual, as trustees (each of such trustees in (ii) and (iii) a "Trustee" and collectively, the "Trustees"). The Depositor and the Trustees hereby agree as follows: 1. The trust created hereby (the "Trust") shall be known as "First Preferred Capital Trust" in which name the Trustees, or the Depositor to the extent provided herein, may engage in the transactions contemplated hereby, make and execute contracts, and sue and be sued. 2. The Depositor hereby assigns, transfers, conveys and sets over the Trustees the sum of $10.00. The Trustees hereby acknowledge receipt of such amount in trust from the Depositor, which amount shall constitute the initial trust estate. The Trustees hereby declare that they will hold the trust estate in trust for the Depositor. It is the intention of the parties hereto that the Trust created hereby constitute a business trust under Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. Section 3801, et seq. (the "Business Trust Act"), and that this document constitutes the governing instrument of the Trust. The Trustees are hereby authorized and directed to execute and file a certificate of trust with the Delaware Secretary of State in accordance with the provisions of the Business Trust Act. 3. The Depositor and the Trustees will enter into an amended and restated Trust Agreement, satisfactory to each such party and substantially in the form included as an exhibit to the 1933 Act Registration Statement (as defined below), to provide for the contemplated operation of the Trust created hereby and the issuance of the Preferred Securities and Common Securities referred to therein. Prior to the execution and delivery of such amended and restated Trust Agreement, the Trustees shall not have any duty or obligation hereunder or with respect to the trust estate, except as otherwise required by applicable law or as may be necessary to obtain prior to such execution and delivery of any licenses, consents or approvals required by applicable law or otherwise. 4. The Depositor and the Trustees hereby authorize and direct the Depositor, as the sponsor of the Trust, (i) to file with the Securities and Exchange Commission (the "Commission") and execute, in each case on behalf of the Trust, (a) the Registration Statement on Form S-2 (the "1933 Act Registration Statement"), including any pre-effective or post-effective amendments to the 1933 Act Registration Statement, relating to the registration under the Securities Act of 1933, as amended, of the Preferred Securities of the Trust and possibly certain other securities and (b) a Registration Statement on Form 8-A (the "1934 Act Registration Statement") (including all pre-effective and post-effective amendments thereto) relating to the registration of the Preferred Securities of the Trust under the Securities Exchange Act of 1934, as amended; (ii) to file with The Nasdaq Stock Market's National Market or a national stock exchange (each, an "Exchange") and execute on behalf of the Trust one or more listing applications and all other applications, statements, certificates, agreements and other instruments as shall be necessary or desirable to cause the Preferred Securities to be listed on any of the Exchanges; (iii) to file and execute on behalf of the Trust such applications, reports, surety bonds, irrevocable consents, appointments of attorney for service of process and other papers and documents as shall be necessary or desirable to register the Preferred Securities under the securities or blue sky laws of such jurisdictions as the Depositor, on behalf of the Trust, may deem necessary or desirable; and (iv) to execute on behalf of the Trust that certain Underwriting Agreement relating to the Preferred Securities, among the Trust, the Depositor and the several Underwriters named therein, substantially in the form included as an exhibit to the 1933 Act Registration Statement. In the event that any filing 3 referred to in clauses (i), (ii) and (iii) above is required by the rules and regulations of the Commission, an Exchange or state securities or blue sky laws, to be executed on behalf of the Trust by one or more of the Trustees, each of the Trustees, in its or his capacity as a Trustee of the Trust, is hereby authorized and, to the extent so required, directed to join in any such filing and to execute on behalf of the Trust any and all of the foregoing, it being understood that Wilmington Trust Company in its capacity as a Trustee of the Trust shall not be required to join in any such filing or execute on behalf of the Trust any such document unless required by the rules and regulations of the Commission, the Exchange or state securities or blue sky laws. In connection with the filings referred to above, the Depositor and James F. Dierberg, Allen H. Blake and Laurence J. Brost, each as Trustees and not in their individual capacities, hereby constitutes and appoints James F. Dierberg, Allen H. Blake and Laurence J. Brost, and each of them, as its true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for the Depositor or such Trustee or in the Depositor's or such Trustees' name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to the 1933 Act Registration Statement and the 1934 Act Registration Statement and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Commission, the Exchange and administrators of the state securities or blue sky laws, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as the Depositor or such Trustee might or could to in person, hereby ratifying and confirming all that said attorneys-in- fact and agents or any of them, or their respective substitute or substitutes, shall do or cause to be done by virtue hereof. 5. This Trust Agreement may be executed in one or more counterparts. 6. The number of Trustees initially shall be four and thereafter the number of Trustees shall be such number as shall be fixed from time to time by a written instrument signed by the Depositor which may increase or decrease the number of Trustees; provided, however, that to the extent required by the Business Trust Act, one Trustee shall either be a natural person who is a resident of the State of Delaware or, if not a natural person, an entity which has its principal place of business in the State of Delaware and otherwise meets the requirements of applicable Delaware law. Subject to the foregoing, the Depositor is entitled to appoint or remove without cause any Trustee at any time. The Trustees may resign upon 30 days' prior notice to the Depositor. 7. This Trust Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware (without regard to conflict of laws of principles). [Signature Pages On Next Page] 2 4 IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to be duly executed as of the day and year first above written. FIRST BANKS, INC. as Depositor By: /s/ James F. Dierberg ------------------------------------------------- Name: James F. Dierberg Title: Chairman of the Board, President and Chief Executive Officer WILMINGTON TRUST COMPANY as Trustee By: /s/ Name:----------------------------------------------- Title:---------------------------------------------- /s/ James F. Dierberg ---------------------------------------------------- JAMES F. DIERBERG as Trustee /s/ Allen H. Blake ---------------------------------------------------- ALLEN H. BLAKE as Trustee /s/ Laurence J. Brost ---------------------------------------------------- LAURENCE J. BROST as Trustee 3 EX-4.5 6 FORM OF AMENDED AND RESTATED TRUST AGREEMENT 1 EXHIBIT 4.5 2 ============================================================================== FIRST PREFERRED CAPITAL TRUST AMENDED AND RESTATED TRUST AGREEMENT AMONG FIRST BANKS, INC., 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 JANUARY --------, 1997 ============================================================================== 3 TABLE OF CONTENTS
PAGE ---- ARTICLE I DEFINED TERMS . . . . . . . . . . . . . . . 1 Section 101. Definitions . . . . . . . . . . . . . . . . 1 ARTICLE II ESTABLISHMENT OF THE TRUST. . . . . . . . . 9 Section 201. Name. . . . . . . . . . . . . . . . . . . . 9 Section 202. Office of the Delaware Trustee; Principal Place of Business . . . . . . . . . . . . . 10 Section 203. Initial Contribution of Trust Property; Organizational Expenses . . . . . . . . . . 10 Section 204. Issuance of the Preferred Securities. . . . 10 Section 205. Issuance of the Common Securities; Subscription and Purchase of Debentures. . . . . . . . . . . . . . . . . 10 Section 206. Declaration of Trust. . . . . . . . . . . . 11 Section 207. Authorization to Enter into Certain Transactions. . . . . . . . . . . . . . . . 11 Section 208. Assets of Trust . . . . . . . . . . . . . . 14 Section 209. Title to Trust Property . . . . . . . . . . 14 ARTICLE III PAYMENT ACCOUNT . . . . . . . . . . . . . . 14 Section 301. Payment Account . . . . . . . . . . . . . . 14 ARTICLE IV DISTRIBUTIONS; REDEMPTION . . . . . . . . . 15 Section 401. Distributions . . . . . . . . . . . . . . . 15 Section 402. Redemption. . . . . . . . . . . . . . . . . 16 Section 403. Subordination of Common Securities. . . . . 17 Section 404. Payment Procedures. . . . . . . . . . . . . 18 Section 405. Tax Returns and Reports . . . . . . . . . . 18 Section 406. Payment of Taxes, Duties, etc. of the Trust . . . . . . . . . . . . . . . . . . . 18 Section 407. Payments Under Indenture. . . . . . . . . . 18 ARTICLE V TRUST SECURITIES CERTIFICATES . . . . . . . 19 Section 501. Initial Ownership . . . . . . . . . . . . . 19 Section 502. The Trust Securities Certificates . . . . . 19 Section 503. Execution and Delivery of Trust Securities Certificates . . . . . . . . . . 19 Section 504. Registration of Transfer and Exchange of Preferred Securities Certificates . . . . . 19 Section 505. Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates . . . . . . . 20 Section 506. Persons Deemed Securityholders. . . . . . . 21 Section 507. Access to List of Securityholders' Names and Addresses . . . . . . . . . . . . . . . 21 Section 508. Maintenance of Office or Agency . . . . . . 21 Section 509. Appointment of Paying Agent . . . . . . . . 21 Section 510. Ownership of Common Securities by Depositor . . . . . . . . . . . . . . . . . 22 Section 511. Preferred Securities Certificates . . . . . 22 Section 512. [Intentionally Omitted] Section 513. [Intentionally Omitted] Section 514. Rights of Securityholders . . . . . . . . . 23 i 4 ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS; VOTING. . . . . . . . . . . . . . . . . . . 24 Section 601. Limitations on Voting Rights. . . . . . . . 24 Section 602. Notice of Meetings. . . . . . . . . . . . . 25 Section 603. Meetings of Preferred Securityholders . . . 25 Section 604. Voting Rights . . . . . . . . . . . . . . . 26 Section 605. Proxies, etc. . . . . . . . . . . . . . . . 26 Section 606. Securityholder Action by Written Consent . . . . . . . . . . . . . . . . . . 26 Section 607. Record Date for Voting and Other Purposes. . . . . . . . . . . . . . . . . . 26 Section 608. Acts of Securityholders . . . . . . . . . . 26 Section 609. Inspection of Records . . . . . . . . . . . 27 ARTICLE VII REPRESENTATIONS AND WARRANTIES. . . . . . . 27 Section 701. Representations and Warranties of the Bank and the Property Trustee . . . . . . . 27 Section 702. Representations and Warranties of the Delaware Bank and the Delaware Trustee. . . 28 Section 703. Representations and Warranties of Depositor . . . . . . . . . . . . . . . . . 29 ARTICLE VIII TRUSTEES. . . . . . . . . . . . . . . . . . 30 Section 801. Certain Duties and Responsibilities . . . . 30 Section 802. Certain Notices . . . . . . . . . . . . . . 31 Section 803. Certain Rights of Property Trustee. . . . . 31 Section 804. Not Responsible for Recitals or Issuance of Securities . . . . . . . . . . . . . . . 33 Section 805. May Hold Securities . . . . . . . . . . . . 33 Section 806. Compensation; Indemnity; Fees . . . . . . . 33 Section 807. Corporate Property Trustee Required; Eligibility of Trustees . . . . . . . . . . 34 Section 808. Conflicting Interests . . . . . . . . . . . 35 Section 809. Co-Trustees and Separate Trustee. . . . . . 35 Section 810. Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . . . 36 Section 811. Acceptance of Appointment by Successor. . . 37 Section 812. Merger, Conversion, Consolidation or Succession to Business. . . . . . . . . . . 38 Section 813. Preferential Collection of Claims Against Depositor or Trust. . . . . . . . . . . . . 38 Section 814. Reports by Property Trustee . . . . . . . . 38 Section 815. Reports to the Property Trustee . . . . . . 38 Section 816. Evidence of Compliance with Conditions Precedent . . . . . . . . . . . . . . . . . 39 Section 817. Number of Trustees. . . . . . . . . . . . . 39 Section 818. Delegation of Power . . . . . . . . . . . . 39 Section 819. Voting. . . . . . . . . . . . . . . . . . . 39 ARTICLE IX TERMINATION, LIQUIDATION AND MERGER . . . . 40 Section 901. Termination Upon Expiration Date. . . . . . 40 Section 902. Early Termination . . . . . . . . . . . . . 40 Section 903. Termination . . . . . . . . . . . . . . . . 40 Section 904. Liquidation . . . . . . . . . . . . . . . . 40 Section 905. Mergers, Consolidations, Amalgamations or Replacements of the Trust . . . . . . . . . 42 ii 5 ARTICLE X MISCELLANEOUS PROVISIONS. . . . . . . . . . 42 Section 1001. Limitation of Rights of Securityholders . . 42 Section 1002. Amendment . . . . . . . . . . . . . . . . . 43 Section 1003. Separability. . . . . . . . . . . . . . . . 44 Section 1004. Governing law . . . . . . . . . . . . . . . 44 Section 1005. Payments Due on Non-Business Day. . . . . . 44 Section 1006. Successors. . . . . . . . . . . . . . . . . 44 Section 1007. Headings. . . . . . . . . . . . . . . . . . 44 Section 1008. Reports, Notices and Demands. . . . . . . . 44 Section 1009. Agreement Not to Petition . . . . . . . . . 45 Section 1010. Trust Indenture Act; Conflict with Trust Indenture Act . . . . . . . . . . . . . . . 45 Section 1011. Acceptance of Terms of Trust Agreement, Guarantee and Indenture . . . . . . . . . . 46 Exhibit A Certificate of Trust Exhibit B 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
iii 6 CROSS-REFERENCE TABLE
Section of Section of Amended Trust Indenture Act and Restated of 1939, as amended Trust Agreement - ------------------- --------------- 310(a)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . .807 310(a)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . .807 310(a)(3). . . . . . . . . . . . . . . . . . . . . . . . . . . .807 310(a)(4). . . . . . . . . . . . . . . . . . . . . . . . 207(a)(ii) 310(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .808 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .813 311(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .813 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .507 312(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .507 312(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .507 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . 814(a) 313(a)(4). . . . . . . . . . . . . . . . . . . . . . . . . . 814(b) 313(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . 814(b) 313(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1008 313(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . 814(c) 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .815 314(b) . . . . . . . . . . . . . . . . . . . . . . . Not Applicable 314(c)(1). . . . . . . . . . . . . . . . . . . . . . . . . . . .816 314(c)(2). . . . . . . . . . . . . . . . . . . . . . . . . . . .816 314(c)(3). . . . . . . . . . . . . . . . . . . . . . Not Applicable 314(d) . . . . . . . . . . . . . . . . . . . . . . . Not Applicable 314(e) 101, 816 315(a) . . . . . . . . . . . . . . . . . . . . . . . 801(a), 803(a) 315(b) . . . . . . . . . . . . . . . . . . . . . . . . . .802, 1008 315(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . 801(a) 315(d) . . . . . . . . . . . . . . . . . . . . . . . . . . 801, 803 316(a)(2). . . . . . . . . . . . . . . . . . . . . . Not Applicable 316(b) . . . . . . . . . . . . . . . . . . . . . . . Not Applicable 316(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .607 317(a)(1). . . . . . . . . . . . . . . . . . . . . . Not Applicable 317(a)(2). . . . . . . . . . . . . . . . . . . . . . Not Applicable 317(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .509 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1010 Note: This Cross-Reference Table does not constitute part of this Agreement and shall not affect any interpretation of any of its terms or provisions.
iv 7 AMENDED AND RESTATED TRUST AGREEMENT AMENDED AND RESTATED TRUST AGREEMENT, dated as of January - ----, 1997, among (i) FIRST BANKS, INC., a Missouri corporation (including any successors or assigns, the "Depositor"), (ii) STATE STREET BANK AND TRUST COMPANY, a 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) JAMES F. DIERBERG, an individual, ALLEN H. BLAKE, an individual, and LAURENCE J. BROST, an individual, each of whose address is c/o First Banks, Inc., 11901 Olive Boulevard, St. Louis, Missouri 63141 (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). RECITALS WHEREAS, the Depositor, the Delaware Trustee, and James F. Dierberg, Allen H. Blake and Laurence J. Brost, 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 December 12, 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 December 13, 1996, the form of which is attached as Exhibit A; and WHEREAS, the Depositor, the Delaware Trustee, the Property Trustee and the Administrative Trustees desire to amend and restate the Original Trust Agreement in its entirety as set forth herein to provide for, among other things, (i) the issuance of the Common Securities (as defined herein) by the Trust (as defined herein) to the Depositor; (ii) the issuance and sale of the Preferred Securities (as defined herein) by the Trust pursuant to the Underwriting Agreement (as defined herein); (iii) the acquisition by the Trust from the Depositor of all of the right, title and interest in the Debentures (as defined herein); and (iv) the appointment of the Trustees; NOW THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each party, for the benefit of the other parties and for the benefit of the Securityholders (as defined herein), hereby amends and restates the Original Trust Agreement in its entirety and agrees as follows: ARTICLE I DEFINED TERMS SECTION 101. DEFINITIONS. For all purposes of this Trust Agreement, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article I have the meanings assigned to them in this Article I and include the plural as well as the singular; 8 (b) all other terms used herein that are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or a Section, as the case may be, of this Trust Agreement; and (d) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section or other subdivision. "Act" has the meaning specified in Section 608. "Additional Amount" means, with respect to Trust Securities of a given Liquidation Amount and/or a given period, the amount of additional interest accrued on interest in arrears and paid by the Depositor on a Like Amount of Debentures for such period. "Additional Interest" has the meaning specified in Section 1.1 of the Indenture. "Administrative Trustee" means each of James F. Dierberg, Allen H. Blake and Laurence J. Brost, solely in his capacity as Administrative Trustee of the Trust formed and continued hereunder and not in his individual capacity, or such Administrative Trustee's successor in interest in such capacity, or any successor trustee appointed as herein provided. "Affiliate" means, with respect to a specified Person, (a) any Person directly or indirectly owning, controlling or holding with power to vote 10% or more of the outstanding voting securities or other ownership interests of the specified Person, any Person 10% or more of whose outstanding voting securities or other ownership interests are directly or indirectly owned, controlled or held with power to vote by the specified Person; (c) any Person directly or indirectly controlling, controlled by, or under common control with the specified Person; (d) a partnership in which the specified Person is a general partner; (e) any officer or director of the specified Person; and (f) if the specified Person is an individual, any entity of which the specified Person is an officer, director or general partner. "Bank" has the meaning specified in the Preamble to this Trust Agreement. "Bankruptcy Event" means, with respect to any Person: (a) the entry of a decree or order by a court having jurisdiction in the premises adjudging such Person a bankrupt or insolvent, or approving as properly filed a petition seeking liquidation or reorganization of or in respect of such Person under the United States Bankruptcy Code of 1978, as amended, or any other similar applicable federal or state law, and the continuance of any such decree or order unvacated and unstayed for a period of 90 days; or the commencement of an involuntary case under the United States Bankruptcy Code of 1978, as amended, in respect of such Person, which shall continue undismissed for a period of 90 days or entry of an order for relief in such case; or the entry of a decree or order of a court having jurisdiction in the premises for the appointment on the ground of insolvency or bankruptcy of a receiver, custodian, liquidator, trustee or assignee in bankruptcy or insolvency of such Person or of its property, or for the winding up or liquidation of its affairs, and such decree or order shall have remained in force unvacated and unstayed for a period of 90 days; or 2 9 (b) the institution by such Person of proceedings to be adjudicated a voluntary bankrupt, or the consent by such Person to the filing of a bankruptcy proceeding against it, or the filing by such Person of a petition or answer or consent seeking liquidation or reorganization under the United States Bankruptcy Code of 1978, as amended, or other similar applicable Federal or State law, or the consent by such Person to the filing of any such petition or to the appointment on the ground of insolvency or bankruptcy of a receiver or custodian or liquidator or trustee or assignee in bankruptcy or insolvency of such Person or of its property, or shall make a general assignment for the benefit of creditors. "Bankruptcy Laws" has the meaning specified in Section 1009. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the Depositor to have been duly adopted by the Depositor's Board of Directors, or such committee of the Board of Directors or officers of the Depositor to which authority to act on behalf of the Board of Directors has been delegated, and to be in full force and effect on the date of such certification, and delivered to the appropriate Trustee. "Business Day" means a day other than a Saturday or Sunday, a day on which banking institutions in The City of New York are authorized or required by law, executive order or regulation to remain closed, or a day on which the Property Trustee's Corporate Trust Office or the Corporate Trust Office of the Debenture Trustee is closed for business. "Certificate of Trust" means the certificate of trust filed with the Secretary of State of the State of Delaware with respect to the Trust, as amended or restated from time to time. "Change in 1940 Act Law" shall have the meaning set forth in the definition of "Investment Company Event." "Closing Date" means the date of execution and delivery of this Trust Agreement. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or, if at any time after the execution of this instrument such Commission 3 10 is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Security" means an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $25 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. "Common Securities Certificate" means a certificate evidencing ownership of Common Securities, substantially in the form attached as Exhibit C. "Corporate Trust Office" means the office at which, at any particular time, the corporate trust business of the Property Trustee or the Debenture Trustee, as the case may be, shall be principally administered, which office at the date hereof, in each such case, is located at 2 International Place, 5th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Trustee. "Debenture Event of Default" means an "Event of Default" as defined in Section 7.1 of the Indenture. "Debenture Redemption Date" means, with respect to any Debentures to be redeemed under the Indenture, the date fixed for redemption under the Indenture. "Debenture Tax Event" means a "Tax Event" as specified in Section 1.1 of the Indenture. "Debenture Trustee" means State Street Bank and Trust Company, a banking corporation company 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 ----% Subordinated Debentures due 2027, issued pursuant to the Indenture. "Definitive Preferred Securities Certificates" means the 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. "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). 4 11 "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 or the Property Trustee in the payment of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days; or (c) default by the Trust or the Property Trustee in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or (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. "Expense Agreement" means the Agreement as to Expenses and Liabilities between the Depositor and the Trust, substantially in the form attached as Exhibit D, as amended from time to time. "Expiration Date" has the meaning specified in Section 901. "Extended Interest Payment Period" has the meaning specified in Section 4.1 of the Indenture. "Guarantee" means the Preferred Securities Guarantee Agreement executed and delivered by the Depositor and Boatmen's 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 January ----, 1997, between the Depositor and the Debenture Trustee, as trustee, as amended or supplemented from time to time. "Investment Company Act," means the Investment Company Act of 1940, as amended, as in effect at the date of execution of this instrument. 5 12 "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 shall be considered an "investment company" that is required to be registered under the Investment Company Act, which Change in 1940 Act Law becomes effective on or after the date of original issuance of the Preferred Securities under this Trust Agreement. "Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of trust, adverse ownership interest, hypothecation, assignment, security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever. "Like Amount" means (a) with respect to a redemption of Trust Securities, Trust Securities having a Liquidation Amount equal to the principal amount of Debentures to be contemporaneously redeemed in accordance with the Indenture and the proceeds of which shall be used to pay the Redemption Price of such Trust Securities; and (b) with respect to a distribution of Debentures to Holders of Trust Securities in connection with a termination or liquidation of the Trust, Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the Holder to whom such Debentures are distributed. Each Debenture distributed pursuant to clause (6) above shall carry with it accumulated interest in an amount equal to the accumulated and unpaid interest then due on such Debentures. "Liquidation Amount" means the stated amount of $25 per Trust Security. "Liquidation Date" means the date on which Debentures are to be distributed to Holders of Trust Securities in connection with a termination and liquidation of the Trust pursuant to Section 904(a). "Liquidation Distribution" has the meaning specified in Section 904(d). "Officers' Certificate" means a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Controller or an Assistant Controller or the Secretary or an Assistant Secretary, of the Depositor, and delivered to the appropriate Trustee. One of the officers signing an Officers' Certificate given pursuant to Section 816 shall be the principal executive, financial or accounting officer of the Depositor. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Trust Agreement shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definitions relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. 6 13 "Opinion of Counsel" means an opinion in writing of legal 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; (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. "Paying Agent" means any paying agent or co-paying agent appointed pursuant to Section 509 and shall initially be the Bank. "Payment Account" means a segregated non-interest-bearing corporate trust account maintained by the Property Trustee with the Bank in its trust department for the benefit of the Securityholders in which all amounts paid in respect of the Debentures shall be held and from which the Property Trustee shall make payments to the Securityholders in accordance with Sections 401 and 402. "Person" means any individual, corporation, partnership, joint venture, trust, limited liability company or corporation, unincorporated organization or government or any agency or political subdivision thereof. 7 14 "Preferred Security" means an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $25 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. "Preferred Securities Certificate", means a certificate evidencing ownership of Preferred Securities, substantially in the form attached as Exhibit E. "Property Trustee" means the commercial bank or trust company identified as the "Property Trustee," in the Preamble to this Trust Agreement solely in its capacity as Property Trustee of the Trust heretofore formed and continued hereunder and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as herein provided. "Redemption Date" means, with respect to any Trust Security to be redeemed, the date fixed for such redemption by or pursuant to this Trust Agreement; provided that each Debenture Redemption Date and the stated maturity of the Debentures shall be a Redemption Date for a Like Amount of Trust Securities. "Redemption Price" means, with respect to any Trust Security, the Liquidation Amount of such Trust Security, plus accumulated and unpaid Distributions to the Redemption Date, paid by the Depositor upon the concurrent redemption of a Like Amount of Debentures, allocated on a pro rata basis (based on Liquidation Amounts) among the Trust Securities. "Relevant Trustee" shall have the meaning specified in Section 810. "Securities Register" and "Securities Registrar" have the respective meanings specified in Section 504. "Securityholder" or "Holder" means a Person in whose name a Trust Security or Securities is registered in the Securities Register; any such Person is a beneficial owner within the meaning of the Delaware Business Trust Act. "Trust" means the Delaware business trust created and continued hereby and identified on the cover page to this Trust Agreement. 8 15 "Trust Agreement" means this Amended and Restated Trust Agreement, as the same may be modified, amended or supplemented in accordance with the applicable provisions hereof, including all exhibits hereto, including, for all purposes of this Trust Agreement and any such modification, amendment or supplement, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this Trust Agreement and any such modification, amendment or supplement, respectively. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939, as amended, is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trust Property" means (a) the Debentures; (b) the rights of the Property Trustee under the Guarantee; (c) any cash on deposit in, or owing to, the Payment Account; and (d) all proceeds and rights in respect of the foregoing and any other property and assets for the time being held or deemed to be held by the Property Trustee pursuant to the trusts of this Trust Agreement. "Trust Security" means any one of the Common Securities or the Preferred Securities. "Trust Securities Certificate" means any one of the Common Securities Certificates or the Preferred Securities Certificates. "Trustees" means, collectively, the Property Trustee, the Delaware Trustee and the Administrative Trustees. "Underwriting Agreement" means the Underwriting Agreement, dated as of January ---, 1997, 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 "First Preferred Capital Trust," 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. The address of the Delaware Trustee in the State of Delaware is c/o Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration, or such other address in the State of Delaware as the Delaware Trustee may designate by written notice to the Securityholders and the Depositor. The principal executive office of the Trust is c/o First Banks, Inc., 135 North Meramec Avenue, St. Louis, Missouri 63105. 9 16 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 January ---, 1997, the Depositor and an Administrative Trustee, on behalf of the Trust and pursuant to the Original Trust Agreement, executed and delivered the Underwriting Agreement. Contemporaneously with the execution and delivery of this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 502 and deliver in accordance with the Underwriting Agreement, Preferred Securities Certificates, registered in the name of the Persons entitled thereto, in an aggregate amount of --------------- 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 Persons entitled thereto, 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. (a) Contemporaneously with the execution and delivery of this Trust Agreement, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 502 and deliver to the Depositor, Common Securities Certificates, registered in the name of the Depositor, in an aggregate amount of 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 $----------. (b) If the underwriters exercise the Option and there is an Option Closing Date, then an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 502 and deliver to the Depositor, Common Securities Certificates, registered in the name of the Depositor, 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 10 17 the last sentence of Section 204 (being the sum of the amounts delivered to the Property Trustee pursuant to (i) the third sentence of Section 204; and (ii) the first sentence of this Section 205(b)). SECTION 206. DECLARATION OF TRUST. The exclusive purposes and functions of the Trust are (a) to issue and sell Trust Securities and use the proceeds from such sale to acquire the Debentures; and (b) to engage in those activities necessary, convenient or incidental thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to have all the rights, powers and duties to the extent set forth herein, and the Trustees hereby accept such appointment. The Property Trustee hereby declares that it shall hold the Trust Property in trust upon and subject to the conditions set forth herein for the benefit of the Securityholders. The Administrative Trustees shall have all rights, powers and duties set forth herein and in accordance with applicable law with respect to accomplishing the purposes of the Trust. The Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities, of the Property Trustee or the Administrative Trustees set forth herein. The Delaware Trustee shall be one of the Trustees of the Trust for the sole and limited purpose of fulfilling the requirements of Section 3807 of the Delaware Business Trust Act. SECTION 207. AUTHORIZATION TO ENTER INTO CERTAIN TRANSACTIONS. (a) The Trustees shall conduct the affairs of the Trust in accordance with the terms of this Trust Agreement. Subject to the limitations set forth in paragraph (b) of this Section 207 and Article VIII, and in accordance with the following provisions (i) and (ii), the Administrative Trustees shall have the authority to enter into all transactions and agreements determined by the Administrative Trustees to be appropriate in exercising the authority, express or implied, otherwise granted to the Administrative Trustees under this Trust Agreement, and to perform all acts in furtherance thereof, including without limitation, the following: (i) As among the Trustees, each Administrative Trustee, acting singly or jointly, shall have the power and authority to act on behalf of the Trust with respect to the following matters: (A) the issuance and sale of the Trust Securities; (B) to cause the Trust to enter into, and to execute, deliver and perform on behalf of the Trust, the Expense Agreement and such other agreements or documents as may be necessary or desirable in connection with the purposes and function of the Trust; (C) assisting in the registration of the Preferred Securities under the Securities Act of 1933, as amended, and under state securities or blue sky laws, and the qualification of this Trust Agreement as a trust indenture under the Trust Indenture Act; (D) assisting in the listing of the Preferred Securities upon The Nasdaq Stock Market's National Market or such securities exchange or exchanges as shall be determined by the Depositor and the registration of the Preferred Securities under the Exchange Act, and the preparation and filing of all periodic and other reports and other documents pursuant to the foregoing; 11 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; (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; 12 19 (I) after an Event of Default, the taking of any action incidental to the foregoing as the Property Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement and protect and conserve the Trust Property for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder); (J) registering transfers of the Trust Securities in accordance with this Trust Agreement; and (K) except as otherwise provided in this Section 207(a)(ii), the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Administrative Trustees set forth in Section 207(a)(i). (b) So long as this Trust Agreement remains in effect, the Trust (or the Trustees acting on behalf of the Trust) shall not undertake any business, activities or transaction except as expressly provided herein or contemplated hereby. In particular, the Trustees shall not (i) acquire any investments or engage in any activities not authorized by this Trust Agreement; (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Securityholders, except as expressly provided herein; (iii) take any action that would cause the Trust to fail or cease to qualify as a "grantor trust" for United States federal income tax purposes; (iv) incur any indebtedness for borrowed money or issue any other debt; or (v) take or consent to any action that would result in the placement of a Lien on any of the Trust Property. The Administrative Trustees shall defend all claims and demands of all Persons at any time claiming any Lien on any of the Trust Property adverse to the interest of the Trust or the Securityholders in their capacity as Securityholders. (c) In connection with the issue and sale of the Preferred Securities, the Depositor shall have the right and responsibility to assist the Trust with respect to, or effect on behalf of the Trust, the following (and any actions taken by the Depositor in furtherance of the following prior to the date of this Trust Agreement are hereby ratified and confirmed in all respects): (i) the preparation and filing by the Trust with the Commission and the execution on behalf of the Trust of a registration statement on the appropriate form in relation to the Preferred Securities and the Debentures, including any amendments thereto; (ii) the determination of the states in which to take appropriate action to qualify or, register for sale all or part of the Preferred Securities and to do any and all such acts, other than actions which must be taken by or on behalf of the Trust, and advise the Trustees of actions they must take on behalf of the Trust, and prepare for execution and filing any documents to be executed and filed by the Trust or on behalf of the Trust, as the Depositor deems necessary or advisable in order to comply with the applicable laws of any such States; (iii) the preparation for filing by the Trust and execution on behalf of the Trust of an application to The Nasdaq Stock Market's National Market or a national stock exchange or other organizations for listing upon notice of issuance of any Preferred Securities and to file or cause an Administrative Trustee to file thereafter with such exchange or organization such notifications and documents as may be necessary from time to time; 13 20 (iv) the preparation for filing by the Trust with the Commission and the execution on behalf of the Trust of a registration statement on Form 8-A relating to the registration of the Preferred Securities under Section 12(b) or 12(g) of the Exchange Act, including any amendments thereto; (v) the negotiation of the terms of, and the execution and delivery of, the Underwriting Agreement providing for the sale of the Preferred Securities; and (vi) the taking of any other actions necessary or desirable to carry out any of the foregoing activities. (d) Notwithstanding anything herein to the contrary, the Administrative Trustees are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that the Trust shall not be deemed to be an "investment company" required to be registered under the Investment Company Act, shall be classified as a "grantor trust" and not as an association taxable as a corporation for United States federal income tax purposes and so that the Debentures shall be treated as indebtedness of the Depositor for United States federal income tax purposes. In this connection, subject to Section 1002, the Depositor and the Administrative Trustees are authorized to take any action, not inconsistent with applicable law or this Trust Agreement, that each of the Depositor and the Administrative Trustees determines in their discretion to be necessary or desirable for such purposes. SECTION 208. ASSETS OF TRUST. The assets of the Trust shall consist of the Trust Property. SECTION 209. TITLE TO TRUST PROPERTY. Legal title to all Trust Property shall be vested at all times in the Property Trustee (in its capacity as such) and shall be held and administered by the Property Trustee for the benefit of the Securityholders in accordance with this Trust Agreement. ARTICLE III PAYMENT ACCOUNT SECTION 301. PAYMENT ACCOUNT. (a) On or prior to the Closing Date, the Property Trustee shall establish the Payment Account. The Property Trustee and any agent of the Property Trustee shall have exclusive control and sole right of withdrawal with respect to the Payment Account for the purpose of making deposits and withdrawals from the Payment Account in accordance with this Trust Agreement. All monies and other property deposited or held from time to time in the Payment Account shall be held by the Property Trustee in the Payment Account for the exclusive benefit of the Securityholders and for distribution as herein provided, including (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. 14 21 ARTICLE IV DISTRIBUTIONS; REDEMPTION SECTION 401. DISTRIBUTIONS. (a) Distributions on the Trust Securities shall be cumulative, and shall accumulate whether or not there are funds of the Trust available for the payment of Distributions. Distributions shall accumulate from ----------, 1997, and, except during any Extended Interest Payment Period with respect to the Debentures, shall be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing on March 31, 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 Extended Interest Payment Period with respect to the Debentures, Distributions on the Preferred Securities shall be deferred for a period equal to the Extended Interest Payment Period. The amount of Distributions payable for any period shall include the Additional Amounts, if any. (c) Distributions on the Trust Securities shall be made by the Property Trustee solely from the Payment Account and shall be payable on each Distribution Date only to the extent that the Trust has funds then on hand and immediately available 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 15th day of the month in which the Distribution is payable. SECTION 402. REDEMPTION. (a) On each Debenture Redemption Date and on the stated maturity of the Debentures, the Trust shall be required to redeem a Like Amount of Trust Securities at the Redemption Price. (b) Notice of redemption shall be given by the Property Trustee by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date to each Holder of Trust Securities to be redeemed, at such Holder's address appearing in the Securities Register. The 15 22 Property Trustee shall have no responsibility for the accuracy of any CUSIP number contained in such notice. All notices of redemption shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) the CUSIP number; (iv) if less than all the Outstanding Trust Securities are to be redeemed, the identification and the aggregate Liquidation Amount of the particular Trust Securities to be redeemed; and (v) that, on the Redemption Date, the Redemption Price shall become due and payable upon each such Trust Security to be redeemed and that Distributions thereon shall cease to accumulate on and after said date. (c) The Trust Securities redeemed on each Redemption Date shall be redeemed at the Redemption Price with the proceeds from the contemporaneous redemption of Debentures. Redemptions of the Trust Securities shall be made and the Redemption Price shall be payable on each Redemption Date only to the extent that the Trust has immediately available funds then on hand and available in the Payment Account for the payment of such Redemption Price. (d) If the Property Trustee gives a notice of redemption in respect of any Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption Date, subject to Section 402(c), the Property Trustee shall deposit with the Paying Agent funds sufficient to pay the applicable Redemption Price and shall give the Paying Agent irrevocable instructions and authority to pay the Redemption Price to the Holders thereof upon surrender of their Preferred Securities Certificates. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date for any Trust Securities called for redemption shall be payable to the Holders of such Trust Securities as they appear on the Register for the Trust Securities on the relevant record dates for the related Distribution Dates. If notice of redemption shall have been given and funds deposited as required, then upon the date of such deposit, all rights of Securityholders holding Trust Securities so called for redemption shall cease, except the right of such Securityholders to receive the Redemption Price and any Distribution payable on or prior to the Redemption Date, but without interest, and such Securities shall cease to be Outstanding. In the event that any date on which any Redemption Price is payable is not a Business Day, then payment of the Redemption Price payable on such date shall be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment shall be made on the immediately preceding Business Day, in each case, with the same force and effect as if made on such date. In the event that payment of the Redemption Price in respect of any Trust Securities called for redemption is improperly withheld or refused and not paid either by the Trust or by the Depositor pursuant to the Guarantee, Distributions on such Trust Securities shall continue to accumulate, at the then applicable rate, from the Redemption Date originally established by the Trust for such Trust Securities to the date such Redemption 16 23 Price is actually paid, in which case the actual payment date shall be the date fixed for redemption for purposes of calculating the Redemption Price. (e) Payment of the Redemption Price on the Trust Securities shall be made to the record holders thereof as they appear on the Securities Register for the Trust Securities on the relevant record date, which shall be the date 15 days prior to the relevant Redemption Date. (f) Subject to Section 403(a), if less than all the Outstanding Trust Securities are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of Trust Securities to be redeemed shall be allocated on a pro rata basis (based on Liquidation Amounts) among the Common Securities and the Preferred Securities. The particular Preferred Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Property Trustee from the outstanding Preferred Securities not previously called for redemption, by such method (including, without limitation, by lot) as the Property Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $25 or an integral multiple of $25 in excess thereof) of the Liquidation Amount of Preferred Securities of a denomination larger than $25. The Property Trustee shall promptly notify the Securities Registrar in writing of the Preferred Securities selected for redemption and, in the case of any Preferred Securities selected for partial redemption, the Liquidation Amount thereof to be redeemed. For all purposes of this Trust Agreement, unless the context otherwise requires, all provisions relating to the redemption of Preferred Securities shall relate, in the case of any Preferred Securities redeemed or to be redeemed only in part, to the portion of the Liquidation Amount of Preferred Securities which has been or is to be redeemed. SECTION 403. SUBORDINATION OF COMMON SECURITIES. (a) Payment of Distributions (including Additional Amounts, if applicable) on, and the Redemption Price of, the Trust Securities, as applicable, shall be made, subject to Section 402(f), pro rata among the Common Securities and the Preferred Securities based on the Liquidation Amount of the Trust Securities; provided, however, that if on any Distribution Date or Redemption Date any Event of Default resulting from a Debenture Event of Default shall have occurred and be continuing, no payment of any Distribution (including Additional Amounts, if applicable) on, or Redemption Price of, any Common Security, and no other payment on account of the redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions (including Additional Amounts, if applicable) on all Outstanding Preferred Securities for all Distribution periods terminating on or prior thereto, or in the case of payment of the Redemption Price the full amount of such Redemption Price on all Outstanding Preferred Securities then called for redemption, shall have been made or provided for, and all funds immediately available to the Property Trustee shall first be applied to the payment in full in cash of all Distributions (including Additional Amounts, if applicable) on, or the Redemption Price of, Preferred Securities then due and payable. (b) In the case of the occurrence of any Event of Default resulting from a Debenture Event of Default, the Holder of Common Securities shall be deemed to have waived any right to act with respect to 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 17 24 the Holders of the Preferred Securities and not the Holder of the Common Securities, and only the Holders of the Preferred Securities shall have the right to direct the Property Trustee to act on their behalf. SECTION 404. PAYMENT PROCEDURES. Payments of Distributions (including Additional Amounts, if applicable) in respect of the Preferred Securities shall be made by check mailed to the address of the Person entitled thereto as such address shall appear on the Securities Register. Payments in respect of the Common Securities shall be made in such manner as shall be mutually agreed between the Property Trustee and the Common Securityholder. SECTION 405. TAX RETURNS AND REPORTS. The Administrative Trustees shall prepare (or cause to be prepared), at the Depositor's expense, and file all United States federal, state and local tax and information returns and reports required to be filed by or in respect of the Trust. In this regard, the Administrative Trustees shall (a) prepare and file (or cause to be prepared and filed) the appropriate Internal Revenue Service Form required to be filed in respect of the Trust in each taxable year of the Trust; and (b) prepare and furnish (or cause to be prepared and furnished) to each Securityholder the appropriate Internal Revenue Service form required to be furnished to such Securityholder or the information required to be provided on such form. The Administrative Trustees shall provide the Depositor with a copy of all such returns and reports promptly after such filing or furnishing. The Property Trustee shall comply with United States federal withholding and backup withholding tax laws and information reporting requirements with respect to any payments to Securityholders under the Trust Securities. SECTION 406. PAYMENT OF TAXES, DUTIES, ETC. OF THE TRUST. Upon receipt under the Debentures of Additional Interest (as defined in Section 1.1 of 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. 18 25 ARTICLE V TRUST SECURITIES CERTIFICATES SECTION 501. INITIAL OWNERSHIP. Upon the creation of the Trust and the contribution by the Depositor pursuant to Section 203 and until the issuance of the Trust Securities, and at any time during which no Trust Securities are outstanding, the Depositor shall be the sole beneficial owner of the Trust. SECTION 502. 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 and on the date on which the Underwriter exercises the option, as applicable (the "Option Closing Date"), the Administrative Trustees shall cause Trust Securities Certificates, in an aggregate Liquidation Amount as provided in Sections 204 and 205, to be executed on behalf of the Trust by at least one of the Administrative Trustees and delivered to or upon the written order of the Depositor, signed by its Chief Executive Officer, President, any Vice President, the Treasurer or any Assistant Treasurer without further corporate action by the Depositor, in authorized denominations. SECTION 504. REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED SECURITIES CERTIFICATES. (a) The Depositor shall keep or cause to be kept, at the office or agency maintained pursuant to Section 508, a register or registers for the purpose of registering Trust Securities Certificates and transfers and exchanges of Preferred Securities Certificates (herein referred to as the "Securities Register") in which the registrar designated by the Depositor (the "Securities Registrar"), subject to such reasonable regulations as it may prescribe, shall provide for the registration of Preferred Securities Certificates and Common Securities Certificates (subject to Section 510 in the case of the Common Securities Certificates) and registration of transfers and exchanges of Preferred Securities Certificates as herein provided. The Property Trustee shall be the initial Securities Registrar. (b) Upon surrender for registration of transfer of any Preferred Securities Certificate at the office or agency maintained pursuant to Section 508, the Administrative Trustees or any one of them shall execute and deliver, in the name of the designated transferee or transferees, one or more new Preferred Securities Certificates in authorized denominations of a like aggregate Liquidation Amount dated the date 19 26 of execution by such Administrative Trustee or Trustees. The Securities Registrar shall not be required to register the transfer of any Preferred Securities that have been called for redemption. At the option of a Holder, Preferred Securities Certificates may be exchanged for other Preferred Securities Certificates in authorized denominations of the same class and of a like aggregate Liquidation Amount upon surrender of the Preferred Securities Certificates to be exchanged at the office or agency maintained pursuant to Section 508. (c) Every Preferred Securities Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in form satisfactory to the Property Trustee and the Securities Registrar duly executed by the Holder or his attorney duly authorized in writing. Each Preferred Securities Certificate surrendered for registration of transfer or exchange shall be canceled and subsequently disposed of by the Property Trustee in accordance with its customary practice. The Trust shall not be required to (i) issue, register the transfer of, or exchange any Preferred Securities during a period beginning at the opening of business 15 calendar days before the date of mailing of a notice of redemption of any Preferred Securities called for redemption and ending at the close of business on the day of such mailing; or (ii) register the transfer of or exchange any Preferred Securities so selected for redemption, in whole or in part, except the unredeemed portion of any such Preferred Securities being redeemed in part. (d) No service charge shall be made for any registration of transfer or exchange of Preferred Securities Certificates, but the Securities Registrar may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of Preferred Securities Certificates. SECTION 505. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES CERTIFICATES. If (a) any mutilated Trust Securities certificate shall be surrendered to the Securities Registrar, or if the Securities Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Trust Securities Certificate; and (b) there shall be delivered to the Securities Registrar and the Administrative Trustees such security or indemnity as may be required by them to save each of them harmless, then in the absence of notice that such Trust Securities Certificate shall have been acquired by a bona fide purchaser, the Administrative Trustees, or any one of them, on behalf of the Trust shall execute and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities Certificate of like class, tenor and denomination. In connection with the issuance of any new Trust Securities Certificate under this Section 505, the Administrative Trustees or the Securities Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Trust Securities Certificate issued pursuant to this Section 505 shall constitute conclusive evidence of an undivided beneficial interest in the assets of the Trust, as if originally issued, whether or not the lost, stolen or destroyed Trust Securities Certificate shall be found at any time. SECTION 506. PERSONS DEEMED SECURITYHOLDERS. The Trustees, the Paying Agent and the Securities Registrar shall treat the Person in whose name any Trust Securities Certificate shall be registered in the Securities Register as the owner of such Trust Securities Certificate for the purpose of receiving Distributions and for all other purposes whatsoever, and neither the Trustees nor the Securities Registrar shall be bound by any notice to the contrary. 20 27 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, 2 International Place, 5th Floor, Boston, Massachusetts 02110, as the principal corporate trust office for such purposes. The Administrative Trustees shall give prompt written notice to the Depositor and to the Securityholders of any change in the location of the Securities Register or any such office or agency. SECTION 509. APPOINTMENT OF PAYING AGENT. The Paying Agent shall make Distributions to Securityholders from the Payment Account and shall report the amounts of such Distributions to the Property Trustee and the Administrative Trustees. Any Paying Agent shall have the revocable power to withdraw funds from the Payment Account for the purpose of making the Distributions referred to above. The Administrative Trustees may revoke such power and remove the Paying Agent if such Trustees determine in their sole discretion that the Paying Agent shall have failed to perform its obligations under this Trust Agreement in any material respect. 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 shall hold all sums, if any, held by it for payment to the Securityholders in 21 28 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 12.1 of the Indenture) shall be void. The Administrative Trustees shall cause each Common Securities Certificate issued to the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE". SECTION 511. PREFERRED SECURITIES CERTIFICATES (a) Each owner shall receive a Preferred Securities Certificate representing such owner's interest in such Preferred Securities. Upon the issuance of Definitive Preferred Securities Certificates, the Trustees shall recognize the record 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. (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. 22 29 SECTION 512. [Intentionally Omitted] SECTION 513. [Intentionally Omitted] SECTION 514. RIGHTS OF SECURITYHOLDERS. (a) The legal title to the Trust Property is vested exclusively in the Property Trustee (in its capacity as such) in accordance with Section 209, and the Securityholders shall not have any right or title therein other than the undivided beneficial interest in the assets of the Trust conferred by their Trust Securities and they shall have no right to call for any partition or division of property, profits or rights of the Trust except as described below. The Trust Securities shall be personal property giving only the rights specifically set forth therein and in this Trust Agreement. The Trust Securities shall have no preemptive or similar rights. When issued and delivered to Holders of the Preferred Securities against payment of the purchase price therefor, the Preferred Securities shall be fully paid and nonassessable interests in the Trust. The Holders of the Preferred Securities, in their capacities as such, shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. 23 30 (b) For so long as any Preferred Securities remain Outstanding, if, upon a Debenture Event of Default, the Debenture Trustee fails or the holders of not less than 25% in principal amount of the outstanding Debentures fail to declare the principal of all of the Debentures to be immediately due and payable, the Holders of at least 25% in Liquidation Amount of the Preferred Securities then Outstanding shall have such right by a notice in writing to the Depositor and the Debenture Trustee; and upon any such declaration such principal amount of and the accrued interest on all of the Debentures shall become immediately due and payable, provided that the payment of principal and interest on such Debentures shall remain subordinated to the extent provided in the Indenture. (c) For so long as any Preferred Securities remain outstanding, if, upon a Debenture Event of Default arising from the failure to pay interest or principal on the Debentures, the Holders of any Preferred Securities then Outstanding shall, to the fullest extent permitted by law, have the right to directly institute proceedings for enforcement of payment to such Holders of principal of or interest on the Debentures having a principal amount equal to the Liquidation Amount of the Preferred Securities of such Holders. ARTICLE VI ACTS OF SECURITYHOLDERS; MEETINGS; VOTING SECTION 601. LIMITATIONS ON VOTING RIGHTS. (a) Except as provided in this Section 601, in Sections 514, 810 and 1002 and in the Indenture and as otherwise required by law, no Holder of Preferred Securities shall have any right to vote or in any manner otherwise control the administration, operation and management of the Trust or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Trust Securities Certificates, be construed so as to constitute the Securityholders from time to time as partners or members of an association. (b) So long as any Debentures are held by the Property Trustee, the Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or executing any trust or power conferred on the Debenture Trustee with respect to such Debentures; (ii) waive any past default which is waivable under Article VII of the Indenture; (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable; or (iv) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, without, in each case, obtaining the prior approval of the Holders of at least a majority in Liquidation Amount of all Outstanding Preferred Securities; provided, however, that where a consent under the Indenture would require the consent of each Holder of Outstanding Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior written consent of each holder of Preferred Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of the Outstanding Preferred Securities, except by a subsequent vote of the Holders of the Outstanding Preferred Securities. The Property Trustee shall notify each Holder of the Outstanding Preferred Securities of any notice of default received from the Debenture Trustee with respect to the Debentures. In addition to obtaining the foregoing approvals of the Holders of the Preferred Securities, prior to taking any of the foregoing actions, the Trustees shall, at the expense of the Depositor, obtain an Opinion of Counsel experienced in such matters to the effect that the Trust shall continue to be classified as a grantor trust and not as an association taxable as a corporation for United States federal income tax purposes on account of such action. 24 31 (c) If any proposed amendment to the Trust Agreement provides for, or the Trustees otherwise propose to effect, (i) any action that would adversely affect in any material respect the powers, preferences or special rights of the Preferred Securities, whether by way of amendment to the Trust Agreement or otherwise; or (ii) the dissolution, winding-up or termination of the Trust, other than pursuant to the terms of this Trust Agreement, then the Holders of Outstanding Preferred Securities as a class shall be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of the Holders of at least a majority in Liquidation Amount of the Outstanding Preferred Securities. No amendment to this Trust Agreement may be made if, as a result of such amendment, the Trust would cease to be classified as a grantor trust or would be classified as an association taxable as a corporation for United States federal income tax purposes. SECTION 602. NOTICE OF MEETINGS. Notice of all meetings of the Preferred Securityholders, stating the time, place and purpose of the meeting, shall be given by the Property Trustee pursuant to Section 1008 to each Preferred Securityholder of record, at his registered address, at least 15 days and not more than 90 days before the meeting. At any such meeting, any business properly before the meeting may be so considered whether or not stated in the notice of the meeting. Any adjourned meeting may be held as adjourned without further notice. SECTION 603. MEETINGS OF PREFERRED SECURITYHOLDERS. (a) No annual meeting of Securityholders is required to be held. The Administrative Trustees, however, shall call a meeting of Securityholders to vote on any matter in respect of which Preferred Securityholders are entitled to vote upon the written request of the Preferred Securityholders of 25% of the Outstanding Preferred Securities (based upon their aggregate Liquidation Amount) and the Administrative Trustees or the Property Trustee may, at any time in their discretion, call a meeting of Preferred Securityholders to vote on any matters as to which the Preferred Securityholders are entitled to vote. (b) Preferred Securityholders of record of 50% of the Outstanding Preferred Securities (based upon their aggregate Liquidation Amount), present in person or by proxy, shall constitute a quorum at any meeting of Securityholders. (c) If a quorum is present at a meeting, an affirmative vote by the Preferred Securityholders of record present, in person or by proxy, holding more than a majority of the Preferred Securities (based upon their aggregate Liquidation Amount) held by the Preferred Securityholders of record present, either in person or by proxy, at such meeting shall constitute the action of the Securityholders, unless this Trust Agreement requires a greater number of affirmative votes. SECTION 604. VOTING RIGHTS. Securityholders shall be entitled to one vote for each $25 of Liquidation Amount represented by their Trust Securities in respect of any matter as to which such Securityholders are entitled to vote. 25 32 SECTION 605. PROXIES, ETC. At any meeting of Securityholders, any Securityholder entitled to vote thereat may vote by proxy, provided that no proxy, shall be voted at any meeting unless it shall have been placed on file with the Administrative Trustees, or with such other officer or agent of the Trust as the Administrative Trustees may direct, for verification prior to the time at which such vote shall be taken. When Trust Securities are held jointly by several persons, any one of them may vote at any meeting in person or by proxy in respect of such Trust Securities, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Trust Securities. A proxy purporting to be executed by or on behalf of a Securityholder shall be deemed valid unless challenged at or prior to its exercise, and, the burden of proving invalidity shall rest on the challenger. No proxy shall be valid more than three years after its date of execution. SECTION 606. SECURITYHOLDER ACTION BY WRITTEN CONSENT. Any action which may be taken by Securityholders at a meeting may be taken without a meeting if Securityholders holding more than a majority of all Outstanding Trust Securities (based upon their aggregate Liquidation Amount) entitled to vote in respect of such action (or such larger proportion thereof as shall be required by any express provision of this Trust Agreement) shall consent to the action in writing (based upon their aggregate Liquidation Amount). SECTION 607. RECORD DATE FOR VOTING AND OTHER PURPOSES. For the purposes of determining the Securityholders who are entitled to notice of and to vote at any meeting or by written consent, or to participate in any Distribution on the Trust Securities in respect of which a record date is not otherwise provided for in this Trust Agreement, or for the purpose of any other action, the Administrative Trustees may from time to time fix a date, not more than 90 days prior to the date of any meeting of Securityholders or the payment of Distribution or other action, as the case may be, as a record date for the determination of the identity of the Securityholders of record for such purposes. SECTION 608. ACTS OF SECURITYHOLDERS. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Trust Agreement to be given, made or taken by Securityholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders in person or by an agent duly appointed in writing; and, except as otherwise expressly provided herein, such action shall become effective when such instrument or instruments are delivered to an Administrative Trustee. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Securityholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Trust Agreement and (subject to Section 801) conclusive in favor of the Trustees, if made in the manner provided in this Section 608. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other 26 33 officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which any Trustee receiving the same deems sufficient. (c) The ownership of Preferred Securities shall be proved by the Securities Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Securityholder of any Trust Security shall bind every future Securityholder of the same Trust Security and the Securityholder of every Trust Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustees or the Trust in reliance thereon, whether or not notation of such action is made upon such Trust Security. (e) Without limiting the foregoing, a Securityholder entitled hereunder to take any action hereunder with regard to any particular Trust Security may do so with regard to all or any part of the Liquidation Amount of such Trust Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such liquidation amount. (f) A Securityholder may institute a legal proceeding directly against the Depositor under the Guarantee to enforce its rights under the Guarantee without first instituting a legal proceeding against the Guarantee Trustee (as defined in the Guarantee), the Trust or any Person. SECTION 609. INSPECTION OF RECORDS. Upon reasonable notice to the Administrative Trustees and the Property Trustee, the records of the Trust shall be open to inspection and copying by Securityholders and their authorized representatives during normal business hours for any purpose reasonably related to such Securityholder's interest as a Securityholder. ARTICLE VII REPRESENTATIONS AND WARRANTIES SECTION 701. REPRESENTATIONS AND WARRANTIES OF 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: (a) the Bank is a banking corporation duly organized, validly existing and in good standing under the laws of the State of Massachusetts; 27 34 (b) the Bank has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement; (c) this Trust Agreement has been duly authorized, executed and delivered by the Property Trustee and constitutes the valid and legally binding agreement of the Property Trustee enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors, rights and to general equity principles; (d) the execution, delivery and performance by the Property Trustee of this Trust Agreement has been duly authorized by all necessary corporate or other action on the part of the Property Trustee and does not require any approval of stockholders of the Bank and such execution, delivery and performance shall not (i) violate the Bank's charter or by-laws; (ii) violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties included in the Trust Property pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Property Trustee or the Bank is a party or by which it is bound; or (iii) violate any law, governmental rule or regulation of the United States or the 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. 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; 28 35 (b) the Delaware Bank has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement; (c) this Trust Agreement has been duly authorized, executed and delivered by the Delaware Trustee and constitutes the valid and legally binding agreement of the Delaware Trustee enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors, rights and to general equity principles; (d) the execution, delivery and performance by the Delaware Trustee of this Trust Agreement has been duly authorized by all necessary corporate or other action on the part of the Delaware Trustee and does not require any approval of stockholders of the Delaware Bank and such execution, delivery and performance shall not (i) violate the Delaware Bank's charter or by-laws; (ii) violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties included in the Trust Property pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Delaware Bank or the Delaware Trustee is a party or by which it is bound; or (iii) violate any law, governmental rule or regulation of the United States or the State of Delaware, as the case may be, governing the banking or trust powers of the Delaware Bank or the Delaware Trustee (as appropriate in context) or any order, judgment or decree applicable to the Delaware Bank or the Delaware Trustee; (e) neither the authorization, execution or delivery by the Delaware Trustee of this Trust Agreement nor the consummation of any of the transactions by the Delaware Trustee contemplated herein or therein requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to any governmental authority or agency under any existing federal law governing the banking or trust powers of the Delaware Bank or the Delaware Trustee, as the case may be, under the laws of the United States or the State of Delaware; and (f) there are no proceedings pending or, to the best of the Delaware Trustee's knowledge, threatened against or affecting the Delaware Bank or the Delaware Trustee in any court or before any governmental authority, agency or arbitration board or tribunal which, individually or in the aggregate, would materially and adversely affect the Trust or would question the right, power and authority of the Delaware Trustee to enter into or perform its obligations as one of the Trustees under this Trust Agreement. SECTION 703. REPRESENTATIONS AND WARRANTIES OF DEPOSITOR. The Depositor hereby represents and warrants for the benefit of the Securityholders that: (a) the Trust Securities Certificates issued on the Closing Date or the Option Closing Date, if applicable, on behalf of the Trust have been duly authorized and, shall 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 shall 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 29 36 thereof in connection with the execution, delivery and performance by the Bank, the Property Trustee or the Delaware Trustee, as the case may be, of this Trust Agreement. ARTICLE VIII TRUSTEES SECTION 801. CERTAIN DUTIES AND RESPONSIBILITIES. (a) The duties and responsibilities of the Trustees shall be as provided by this Trust Agreement and, in the case of the Property Trustee, by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Trust Agreement shall require the Trustees to expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers, if they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. No Administrative Trustee nor the Delaware Trustee shall be liable for its act or omissions hereunder except as a result of its own gross negligence or willful misconduct. The Property Trustee's liability shall be determined under the Trust Indenture Act. Whether or not therein expressly so provided, every provision of this Trust Agreement relating to the conduct or affecting the liability of or affording protection to the Trustees shall be subject to the provisions of this Section 801. To the extent that, at law or in equity, the Delaware Trustee or an Administrative Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to the Securityholders, the Delaware Trustee or such Administrative Trustee shall not be liable to the Trust or to any Securityholder for such Trustee's good faith reliance on the provisions of this Trust Agreement. The provisions of this Trust Agreement, to the extent that they restrict the duties and liabilities of the Delaware Trustee or the Administrative Trustees otherwise existing at law or in equity, are agreed by the Depositor and the Securityholders to replace such other duties and liabilities of the Delaware Trustee and the Administrative Trustees, as the case may be. (b) All payments made by the Property Trustee or a Paying Agent in respect of the Trust Securities shall be made only from the revenue and proceeds from the Trust Property and only to the extent that there shall be sufficient revenue or proceeds from the Trust Property to enable the Property Trustee or a Paying Agent to make payments in accordance with the terms hereof. With respect to the relationship of each Securityholder and the Trustee, each Securityholder, by its acceptance of a Trust Security, agrees that it shall look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to it as herein provided and that the Trustees are not personally liable to it for any amount distributable in respect of any Trust Security or for any other liability in respect of any Trust Security. This Section 801(b) does not limit the liability of the Trustees expressly set forth elsewhere in this Trust Agreement or, in the case of the Property Trustee, in the Trust Indenture Act. (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; 30 37 (ii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in Liquidation Amount of the Trust Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Trust Agreement; (iii) the Property Trustee's sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Payment Account shall be to deal with such Property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Trust Agreement and the Trust Indenture Act; (iv) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree with the Depositor and money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Payment Account maintained by the Property Trustee pursuant to Section 301 and except to the extent otherwise required by law; and (v) the Property Trustee shall not be responsible for monitoring the compliance by the Administrative Trustees or the Depositor with their respective duties under this Trust Agreement, nor shall the Property Trustee be liable for the negligence, default or misconduct of the Administrative Trustees or the Depositor. SECTION 802. CERTAIN NOTICES. (a) Within 5 Business Days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee shall transmit, in the manner and to the extent provided in Section 1008, notice of such Event of Default to the Securityholders, the Administrative Trustees and the Depositor, unless such Event of Default shall have been cured or waived. For purposes of this Section 802 the term "Event of Default" means any event that is, or after notice or lapse of time or both would become, an Event of Default. (b) The Administrative Trustees shall transmit, to the Securityholders in the manner and to the extent provided in Section 1008, notice of the Depositor's election to begin or further extend an Extended Interest Payment Period on the Debentures (unless such election shall have been revoked) within the time specified for transmitting such notice to the holders of the Debentures pursuant to the Indenture as originally executed. SECTION 803. CERTAIN RIGHTS OF PROPERTY TRUSTEE. Subject to the provisions of Section 801: (a) the Property Trustee may rely and shall be protected in acting or refraining from acting in good faith upon any resolution, Opinion of Counsel, certificate, written representation of a Holder or transferee, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; 31 38 (b) if (i) in performing its duties under this Trust Agreement the Property Trustee is required to decide between alternative courses of action; or (ii) in construing any of the provisions of this Trust Agreement the Property Trustee finds the same ambiguous or inconsistent with other provisions contained herein; or (iii) the Property Trustee is unsure of the application of any provision of this Trust Agreement, then, except as to any matter as to which the Preferred Securityholders are entitled to vote under the terms of this Trust Agreement, the Property Trustee shall deliver a notice to the Depositor requesting written instructions of the Depositor as to the course of action to be taken and the Property Trustee shall take such action, or refrain from taking such action, as the Property Trustee shall be instructed in writing to take, or to refrain from taking, by the Depositor; provided, however, that if the Property Trustee does not receive such instructions of the Depositor within 10 Business Days after it has delivered such notice, or such reasonably shorter period of time set forth in such notice (which to the extent practicable shall not be less than 2 Business Days), it may, but shall be under no duty to, take or refrain from taking such action not inconsistent with this Trust Agreement as it shall deem advisable and in the best interests of the Securityholders, in which event the Property Trustee shall have no liability except for its own bad faith, negligence or willful misconduct; (c) any direction or act of the Depositor or the Administrative Trustees contemplated by this Trust Agreement shall be sufficiently evidenced by an Officers' Certificate; (d) whenever in the administration of this Trust Agreement, the Property Trustee shall deem it desirable that a matter be established before undertaking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officer's Certificate which, upon receipt of such request, shall be promptly delivered by the Depositor or the Administrative Trustees; (e) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement, any filing under tax or securities laws or any filing under tax or securities laws) or any rerecording, refiling or reregistration thereof; (f) the Property Trustee may consult with counsel of its choice (which counsel may be counsel to the Depositor or any of its Affiliates) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and, in accordance with such advice, such counsel may be counsel to the Depositor or any of its Affiliates, and may include any of its employees; the Property Trustee shall have the right at any time to seek instructions concerning the administration of this Trust Agreement from any court of competent jurisdiction; (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; 32 39 (i) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, provided that the Property Trustee shall be responsible for its own negligence or recklessness with respect to selection of any agent or attorney appointed by it hereunder; (j) whenever in the administration of this Trust Agreement the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder the Property Trustee (i) may request instructions from the Holders of the Trust Securities which instructions may only be given by the Holders of the same proportion in Liquidation Amount of the Trust Securities as would be entitled to direct the Property Trustee under the terms of the Trust Securities in respect of such remedy, right or action; (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received; and (iii) shall be protected in acting in accordance with such instructions; and (k) except as otherwise expressly provided by this Trust Agreement, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Trust Agreement. No provision of this Trust Agreement shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Property Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Property Trustee shall be construed to be a duty. SECTION 804. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES. The Recitals contained herein and in the Trust Securities Certificates shall be taken as the statements of the Trust, and the Trustees do not assume any responsibility for their correctness. The Trustees shall not be accountable for the use or application by the Depositor of the proceeds of the Debentures. SECTION 805. MAY HOLD SECURITIES. Any Trustee or any other agent of any Trustee or the Trust, in its individual or any other capacity, may become the owner or pledgee of Trust Securities and, subject to Sections 808 and 813 and except as provided in the definition of the term "Outstanding" in Article I, may otherwise deal with the Trust with the same rights it would have if it were not a Trustee or such other agent. 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 33 40 disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to such Trustee's negligence, bad faith or willful misconduct (or, in the case of the Administrative Trustees or the Delaware Trustee, any such expense, disbursement or advance as may be attributable to its, his or her gross negligence, bad faith or willful misconduct); and (c) to indemnify each of the Trustees or any predecessor Trustee for, and to hold the Trustees harmless against, any loss, damage, claims, liability, penalty or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of this Trust Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder, except any such expense, disbursement or advance as may be attributable to such Trustee's negligence, bad faith or willful misconduct (or, in the case of the Administrative Trustees or the Delaware Trustee, any such expense, disbursement or advance as may be attributable to its, his or her gross negligence, bad faith or willful misconduct). No Trustee may claim any Lien or charge on 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 807, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Property Trustee with respect to the Trust Securities shall cease to be eligible in accordance with the provisions of this Section 807, it shall resign immediately in the manner and with the effect hereinafter specified in this Article VIII. (b) There shall at all times be one or more Administrative Trustees hereunder with respect to the Trust Securities. Each Administrative Trustee shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more persons authorized to bind that entity. (c) There shall at all times be a Delaware Trustee with respect to the Trust Securities. The Delaware Trustee shall either be (i) a natural person who is at least 21 years of age and a resident of the State of Delaware; or (ii) a legal entity with its principal place of business in the State of Delaware and that otherwise meets the requirements of applicable Delaware law that shall act through one or more persons authorized to bind such entity. SECTION 808. CONFLICTING INTERESTS. If the Property Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Property Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Trust Agreement. 34 41 SECTION 809. CO-TRUSTEES AND SEPARATE TRUSTEE. (a) Unless an Event of Default shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust Property may at the time be located, the Depositor shall have power to appoint, and upon the written request of the Property Trustee, the Depositor shall for such purpose join with the Property Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to appoint, one or more Persons approved by the Property Trustee either to act as co-trustee, jointly with the Property Trustee, of all or any part of such Trust Property, or to the extent required by law to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in the capacity aforesaid, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section 809. If the Depositor does not join in such appointment within 15 days after the receipt by it of a request so to do, or in case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make such appointment. Any co-trustee or separate trustee appointed pursuant to this Section 809 shall either be (i) a natural person who is at least 21 years of age and a resident of the United States; or (ii) a legal entity with its principal place of business in the United States that shall act through one or more persons authorized to bind such entity. (b) Should any written instrument from the Depositor be required by any co-trustee or separate trustee so appointed for more fully confirming to such co-trustee or separate trustee such property, title, right, or power, any and all such instruments shall, on request, be executed, acknowledged, and delivered by the Depositor. (c) Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms, namely: (i) The Trust Securities shall be executed and delivered and all rights, powers, duties and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Trustees specified hereunder, shall be exercised, solely by such Trustees and not by such co-trustee or separate trustee. (ii) The rights, powers, duties and obligations hereby conferred or imposed upon the Property Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed by the Property Trustee or by the Property Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Property Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by such co-trustee or separate trustee. (iii) The Property Trustee at any time, by an instrument in writing executed by it, with the written concurrence of the Depositor, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section 809, and, in case a Debenture Event of Default has occurred and is continuing, the Property Trustee shall have the power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Depositor. Upon the written request of the Property Trustee, the Depositor shall join with the Property Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to effectuate such resignation or 35 42 removal. A successor to any co-trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section 809. (iv) No co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Property Trustee or any other trustee hereunder. (v) The Property Trustee shall not be liable by reason of any act of a co-trustee or separate trustee. (vi) Any Act of Holders delivered to the Property Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee. SECTION 810. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR. (a) No resignation or removal of any Trustee (the "Relevant Trustee") and no appointment of a successor Trustee pursuant to this Article VIII shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 811. (b) Subject to the immediately preceding paragraph, the Relevant Trustee may resign at any time with respect to the Trust Securities by giving written notice thereof to the Securityholders. If the instrument of acceptance by the successor Trustee required by Section 811 shall not have been delivered to the Relevant Trustee within 30 days after the giving of such notice of resignation, the Relevant Trustee may petition, at the expense of the Depositor, any court of competent jurisdiction for the appointment of a successor Relevant Trustee with respect to the Trust Securities. (c) Unless a Debenture Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by Act of the Common Securityholder. If a Debenture Event of Default shall have occurred and be continuing, the Property Trustee or the Delaware Trustee, or both of them, may be removed at such time by Act of the Holders of a majority in Liquidation Amount of the Preferred Securities, delivered to the Relevant Trustee (in its individual capacity and on behalf of the Trust). An Administrative Trustee may be removed by the Common Securityholder at any time. (d) If any Trustee shall resign, be removed or become incapable of acting as Trustee, or if a vacancy shall occur in the office of any Trustee for any cause, at a time when no Debenture Event of Default shall have occurred and be continuing, the Common Securityholder, by Act of the Common Securityholder delivered to the retiring Trustee, shall promptly appoint a successor Trustee or Trustees with respect to the Trust Securities and the Trust, and the successor Trustee shall comply with the applicable requirements of Section 811. If the Property Trustee or the Delaware Trustee shall resign, be removed or become incapable 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 36 43 such successor Administrative Trustee or Administrative Trustees shall comply with the applicable requirements of Section 811. If no successor Relevant Trustee with respect to the Trust Securities shall have been so appointed by the Common Securityholder or the Preferred Securityholders and accepted appointment in the manner required by Section 811, any Securityholder who has been a Securityholder of Trust Securities on behalf of himself and all others similarly situated may petition a court of competent jurisdiction for the appointment Trustee with respect to the Trust Securities. (e) The Property Trustee shall give notice of each resignation and each removal of a Trustee and each appointment of a successor Trustee to all Securityholders in the manner provided in Section 1008 and shall give notice to the Depositor. Each notice shall include the name of the successor Relevant Trustee and the address of its Corporate Trust office if it is the Property Trustee. (f) Notwithstanding the foregoing or any other provision of this Trust Agreement, in the event any Administrative Trustee or a Delaware Trustee who is a natural person dies or becomes, in the opinion of the Depositor, incompetent or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by (a) the unanimous act of remaining Administrative Trustees if there are at least two of them; or (b) otherwise by the Depositor (with the successor in each case being a Person who satisfies the eligibility requirement for Administrative Trustees set forth in Section 807). SECTION 811. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR. (a) In case of the appointment hereunder of a successor Relevant Trustee with respect to the Trust Securities and the Trust, the retiring Relevant Trustee and each successor Relevant Trustee with respect to the Trust Securities shall execute and deliver an instrument hereto wherein each successor Relevant Trustee shall accept such appointment and which shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Relevant Trustee all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust and upon the execution and delivery of such instrument the resignation or removal of the retiring Relevant Trustee shall become effective to the extent provided therein and each such successor Relevant Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust; but, on request of the Trust or any successor Relevant Trustee such retiring Relevant Trustee shall duly assign, transfer and deliver to such successor Relevant Trustee all Trust Property, all proceeds thereof and money held by such retiring Relevant Trustee hereunder with respect to the Trust Securities and the Trust. (b) Upon request of any such successor Relevant Trustee, the Trust shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Relevant Trustee all such rights, powers and trusts referred to in the immediately preceding paragraph, as the case may be. (c) No successor Relevant Trustee shall accept its appointment unless at the time of such acceptance such successor Relevant Trustee shall be qualified and eligible under this Article VIII. SECTION 812. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS. Any Person into which the Property Trustee, the Delaware Trustee or any Administrative Trustee may be merged or converted or with which it may be consolidated, or any Person resulting from any 37 44 merger, conversion or consolidation to which such Relevant Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of such Relevant Trustee, shall be the successor of such Relevant Trustee hereunder, provided such Person shall be otherwise qualified and eligible under this Article VIII, without the execution or filing of any paper or any further act on the part of any of the parties hereto. SECTION 813. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR OR TRUST. If and when the Property Trustee or the Delaware Trustee shall be or become a creditor of the Depositor or the Trust (or any other obligor upon the Debentures or the Trust Securities), the Property Trustee or the Delaware Trustee, as the case may be, shall be subject to and shall take all actions necessary in order to comply with the provisions of the Trust Indenture Act regarding the collection of claims against the Depositor or Trust (or any such other obligor). SECTION 814. REPORTS BY PROPERTY TRUSTEE. (a) Not later than July 15 of each year commencing with July 15, 1997, the Property Trustee shall transmit to all Securityholders in accordance with Section 1008, and to the Depositor, a brief report dated as of such 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 The Nasdaq Stock Market's National Market, and each national securities exchange or other organization upon which the Trust Securities are listed, and also with the Commission and the Depositor. SECTION 815. REPORTS TO THE PROPERTY TRUSTEE. The Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314(a) of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. 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 38 45 Trust Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers' Certificate. SECTION 817. NUMBER OF TRUSTEES. (a) The number of Trustees shall be five, provided that the Holder of all of the Common Securities by written instrument may increase or decrease the number of Administrative Trustees. The Property Trustee and the Delaware Trustee may be the same Person. (b) If a Trustee ceases to hold office for any reason and the number of Administrative Trustees is not reduced pursuant to Section 817(a), or if the number of Trustees is increased pursuant to Section 817(a), a vacancy shall occur. The vacancy shall be filled with a Trustee appointed in accordance with Section 810. (c) The death, resignation, retirement, removal, bankruptcy, incompetence or incapacity to perform the duties of a Trustee shall not operate to annul the Trust. Whenever a vacancy in the number of Administrative Trustees shall occur, until such vacancy is filled by the appointment of an Administrative Trustee in accordance with Section 810, the Administrative Trustees in office, regardless of their number (and notwithstanding any other provision of this Agreement), shall have all the powers granted to the Administrative Trustees and shall discharge all the duties imposed upon the Administrative Trustees by this Trust Agreement. SECTION 818. DELEGATION OF POWER. (a) Any Administrative Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 207(a); and (b) The Administrative Trustees shall have power to delegate from time to time to such of their number or to the Depositor the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Administrative Trustees or otherwise as the Administrative Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. SECTION 819. VOTING. Except as otherwise provided in this Trust Agreement, the consent or approval of the Administrative Trustees shall require consent or approval by not less than a majority of the Administrative Trustees, unless there are only two, in which case both must consent. 39 46 ARTICLE IX TERMINATION, LIQUIDATION AND MERGER SECTION 901. TERMINATION UPON EXPIRATION DATE. Unless earlier dissolved, the Trust shall automatically dissolve on March 31, 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; (c) the discharge of all administrative duties of the Administrative Trustees, including the performance of any tax reporting obligations with respect to the Trust or the Securityholders; and (d) the filing of a Certificate of Cancellation by the Administrative Trustee under the 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: 40 47 (i) state the Liquidation Date; (ii) state that from and after the Liquidation Date, the Trust Securities shall no longer be deemed to be Outstanding and any Trust Securities Certificates not surrendered for exchange shall be deemed to represent a Like Amount of Debentures; and (iii) provide such information with respect to the mechanics by which Holders may exchange Trust Securities Certificates for Debentures, or, if Section 904(d) applies, receive a Liquidation Distribution, as the Administrative Trustees or the Property Trustee shall deem appropriate. (b) Except where Section 902(c) or 904(d) applies, in order to effect the liquidation of the Trust and distribution of the Debentures to Securityholders, the Property Trustee shall establish a record date for such distribution (which shall be not more than 45 days prior to the Liquidation Date) and, either itself acting as exchange agent or through the appointment of a separate exchange agent, shall establish such procedures as it shall deem appropriate to effect the distribution of Debentures in exchange for the Outstanding Trust Securities Certificates. (c) Except where Section 902(c) or 904(d) applies, after the Liquidation Date, (i) the Trust Securities shall no longer be deemed to be outstanding; (ii) certificates representing a Like Amount of Debentures shall be issued to holders of Trust Securities Certificates upon surrender of such certificates to the Administrative Trustees or their agent for exchange; (iii) the Depositor shall use its reasonable efforts to have the Debentures listed on The Nasdaq Stock Market's National Market or on such other securities exchange or other organization as the Preferred Securities are then listed or traded; (iv) any Trust Securities Certificates not so surrendered for exchange shall be deemed to represent a Like Amount of Debentures, accruing interest at the rate provided for in the Debentures from the last Distribution Date on which a Distribution was made on such Trust Securities Certificates until such certificates are so surrendered (and until such certificates are so surrendered, no payments of interest or principal shall be made to holders of Trust Securities Certificates with respect to such Debentures); and (v) all rights of Securityholders holding Trust Securities shall cease, except the right of such Securityholders to receive Debentures upon surrender of Trust Securities Certificates. (d) In the event that, notwithstanding the other provisions of this Section 904, whether because of an order for dissolution entered by a court of competent jurisdiction or otherwise, distribution of the Debentures in the manner provided herein is determined by the Property Trustee not to be practical, the Trust Property shall be liquidated, and the Trust shall be dissolved, wound-up or terminated, by the Property Trustee in such manner as the Property Trustee determines. In such event, on the date of the dissolution, winding-up or other termination of the Trust, Securityholders shall be entitled to receive out of the assets of the Trust available for distribution to Securityholders, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, an amount equal to the Liquidation Amount per Trust Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). If, upon any such dissolution, winding-up or termination, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then, subject to the next succeeding sentence, the amounts payable by the Trust on the Trust Securities shall be paid on a pro rata basis (based upon Liquidation Amounts). The holder of the Common Securities shall be entitled to receive Liquidation Distributions upon any such dissolution, winding-up or termination pro rata (determined as aforesaid) with 41 48 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 shall be listed or traded upon notification of issuance, on any national securities exchange or other organization on which the Preferred Securities are then listed, if any; (iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any Successor Securities) in any material respect; (v) prior to such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Depositor has received an Opinion of Counsel to the effect that (a) such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the holders of the Preferred Securities (including any Successor Securities) in any material respect; and (b) following such merger, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor such successor entity shall be required to register as an "investment company" under the Investment Company Act; and (vi) the Depositor owns all of the Common Securities of such successor entity and guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not, except with the consent of holders of 100% in Liquidation Amount of the Preferred Securities, consolidate, amalgamate, merge with or into, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to any other Person or permit any other Person to consolidate, amalgamate, merge with or into, or replace it if such consolidation, amalgamation, merger or replacement would cause the Trust or the successor entity to be classified as other than a grantor trust for United States federal income tax purposes. ARTICLE X MISCELLANEOUS PROVISIONS SECTION 1001. LIMITATION OF RIGHTS OF SECURITYHOLDERS. The death or incapacity of any Person having an interest, beneficial or otherwise, in Trust Securities shall not operate to terminate this Trust Agreement, nor entitle the legal representatives or heirs of such Person or any Securityholder for such Person, to claim an accounting, take any action or bring 42 49 any proceeding in any court for a partition or winding-up of the arrangements contemplated hereby, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. SECTION 1002. AMENDMENT. (a) This Trust Agreement may be amended from time to time by the Trustees and the Depositor, without the consent of any Securityholders, (i) as provided in Section 811 with respect to acceptance of appointment by a successor Trustee; (ii) to cure any ambiguity, correct or supplement any provision herein or therein which may be inconsistent with any other provision herein or therein, or to make any other provisions with respect to matters or questions arising under this Trust Agreement, that shall not be inconsistent with the other provisions of this Trust Agreement; or (iii) to modify, eliminate or add to any provisions of this Trust Agreement to such extent as shall be necessary to ensure that the Trust shall be classified for United States federal income tax purposes as a grantor trust at all times that any Trust Securities are outstanding or to ensure that the Trust shall not be required to register as an "investment company" under the Investment Company Act; provided, however, that in the case of clause (ii), such action shall not adversely affect in any material respect the interests of any Securityholder, and any amendments of this Trust Agreement shall become effective when notice thereof is given to the Securityholders. (b) Except as provided in Section 601(c) or Section 1002(c) hereof, any provision of this Trust Agreement may be amended by the Trustees and the Depositor (i) with the consent of Trust Securityholders representing not less than a majority (based upon Liquidation Amounts) of the Trust Securities then Outstanding; and (ii) upon receipt by the Trustees of an Opinion of Counsel to the effect that such amendment or the exercise of any power granted to the Trustees in accordance with such amendment shall not affect the Trust's status as a grantor trust for United States federal income tax purposes or the Trust's exemption from status of an "investment company" under the Investment Company Act. (c) In addition to and notwithstanding any other provision in this Trust Agreement, without the consent of each affected Securityholder (such consent being obtained in accordance with Section 603 or 606 hereof), this Trust Agreement may not be amended to (i) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Securities as of a specified date; or (ii) restrict the right of a Securityholder to institute suit for the enforcement of any such payment on or after such date; notwithstanding any other provision herein, without the unanimous consent of the Securityholders (such consent being obtained in accordance with Section 603 or 606 hereof), this paragraph (c) of this Section 1002 may not be amended. (d) Notwithstanding any other provisions of this Trust Agreement, no Trustee shall enter into or consent to any amendment to this Trust Agreement which would cause the Trust to fail or cease to qualify for the exemption from status of an "investment company" under the Investment Company Act or to fail or cease to be classified as a grantor trust for United States federal income tax purposes. (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. 43 50 (f) In the event that any amendment to this Trust Agreement is made, the Administrative Trustees shall promptly provide to the Depositor a copy of such amendment. (g) Neither the Property Trustee nor the Delaware Trustee shall be required to enter into any amendment to this Trust Agreement which affects its own rights, duties or immunities under this Trust Agreement. The Property Trustee shall be entitled to receive an Opinion of Counsel and an Officers' Certificate stating that any amendment to this Trust Agreement is in compliance with this Trust Agreement. SECTION 1003. SEPARABILITY. In case any provision in this Trust Agreement or in the Trust Securities Certificates shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1004. GOVERNING LAW. THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF EACH OF THE SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE (WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES). SECTION 1005. PAYMENTS DUE ON NON-BUSINESS DAY. If the date fixed for any payment on any Trust Security shall be a day that is not a Business Day, then such payment need not be made on such date but may be made on the next succeeding day which is a Business Day (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 XII of the Indenture and pursuant to which the assignee agrees in writing to perform the Depositor's obligations hereunder, the Depositor shall not assign its obligations hereunder. SECTION 1007. HEADINGS. The Article and Section headings are for convenience only and shall not affect the construction of this Trust Agreement. SECTION 1008. REPORTS, NOTICES AND DEMANDS. 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 44 51 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 First Banks, Inc., 11901 Olive Boulevard, St. Louis, Missouri 63141, Attention: Chief Financial Officer, facsimile no.: (314) 567-3490. Any notice to Preferred Securityholders shall also be given to such owners as have, within two years preceding the giving of such notice, filed their names and addresses with the Property Trustee for that purpose. Such notice, demand or other communication to or upon a Securityholder shall be deemed to have been sufficiently given or made, for all purposes, upon hand delivery, mailing or transmission. 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, 2 International Place, 5th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Trustee; (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 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 First Preferred Capital Trust." Such notice, demand or other communication to or upon the Trust or the Property Trustee shall be deemed to have been sufficiently given or made only upon actual receipt of the writing by the Trust or the Property Trustee. SECTION 1009. AGREEMENT NOT TO PETITION. Each of the Trustees and the Depositor agree for the benefit of the Securityholders that, until at least one year and 1 day after the Trust has been terminated in accordance with Article IX, they shall not file, or join in the filing of, a petition against the Trust under any bankruptcy, insolvency, reorganization or other similar law (including, without limitation, the United States Bankruptcy Code of 1978, as amended) (collectively, "Bankruptcy Laws") or otherwise join in the commencement of any proceeding against the Trust under any Bankruptcy Law. In the event the Depositor takes action in violation of this Section 1009, the Property Trustee agrees, for the benefit of Securityholders, that at the expense of the Depositor (which expense shall be paid prior to the filing), it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such petition by the Depositor against the Trust or the commencement of such action and raise the defense that the Depositor has agreed in writing not to take such action and should be stopped and precluded therefrom. The provisions of this Section 1009 shall survive the termination of this Trust Agreement. SECTION 1010. TRUST INDENTURE ACT; CONFLICT WITH TRUST INDENTURE ACT. (a) This Trust Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Trust Agreement and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee which is a trustee for the purposes of the Trust Indenture Act. 45 52 (c) If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Trust Agreement by any of the provisions of the Trust Indenture Act, such required provision shall control. If any provision of this Trust Agreement modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Trust Agreement as so modified or to be excluded, as the case may be. (d) The application of the Trust Indenture Act to this Trust Agreement shall not affect the nature of the Securities as equity securities representing undivided beneficial interests in the assets of the Trust. 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. FIRST BANKS, INC. By:-------------------------------------- Name: Title: STATE STREET BANK AND TRUST COMPANY, as Property Trustee By:-------------------------------------- Name: Title: WILMINGTON TRUST COMPANY, as Delaware Trustee By:-------------------------------------- Name: Title: 46 53 ---------------------------------------------------- James F. Dierberg, as Administrative Trustee ---------------------------------------------------- Allen H. Blake, as Administrative Trustee ---------------------------------------------------- Laurence J. Brost, as Administrative Trustee 47 54 EXHIBIT A CERTIFICATE OF TRUST OF FIRST PREFERRED CAPITAL TRUST THIS CERTIFICATE OF TRUST OF FIRST PREFERRED CAPITAL TRUST (the "Trust"), dated as of December 12, 1996, is being duly executed and filed by WILMINGTON TRUST COMPANY, a Delaware banking corporation, JAMES F. DIERBERG, ALLEN H. BLAKE and LAURENCE J. BROST, 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 FIRST PREFERRED CAPITAL TRUST. 2. DELAWARE TRUSTEE. The name and business address of the trustee of the Trust in the State of Delaware is Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attention: Corporate Trust Administration. 3. EFFECTIVE DATE. This Certificate of Trust shall be effective on December 16, 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:----------------------------------- ----------------------------------------- JAMES F. DIERBERG as Trustee ----------------------------------------- ALLEN H. BLAKE as Trustee ----------------------------------------- LAURENCE J. BROST as Trustee A-1 55 EXHIBIT B [Intentionally Omitted] B-1 56 EXHIBIT C THIS CERTIFICATE IS NOT TRANSFERABLE CERTIFICATE NUMBER ------ NUMBER OF COMMON SECURITIES CERTIFICATE EVIDENCING COMMON SECURITIES OF FIRST PREFERRED CAPITAL TRUST COMMON SECURITIES (LIQUIDATION AMOUNT $25 PER COMMON SECURITY) FIRST PREFERRED CAPITAL TRUST, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that FIRST BANKS, INC. (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 January ---, 1997, as the same may be amended from time to time (the "Trust Agreement"), including the designation of the terms of the Common Securities as set forth therein. The Trust shall furnish a copy of the Trust Agreement to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receive of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder. IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has executed this certificate this ---- day of January, 1997. FIRST PREFERRED CAPITAL TRUST By ------------------------------------ Name: Title: C-1 57 EXHIBIT D AGREEMENT AS TO EXPENSES AND LIABILITIES AGREEMENT AS TO EXPENSES AND LIABILITIES (this "Agreement") dated as of January ---, 1997, between FIRST BANKS, INC., a Missouri corporation ("First Banks"), and FIRST PREFERRED CAPITAL TRUST, a Delaware business trust (the "Trust"). RECITALS WHEREAS, the Trust intends to issue its common securities (the "Common Securities") to, and receive Debentures from, First Banks and to issue and sell First Preferred Capital Trust -----% Cumulative Trust Preferred Securities (the "Preferred Securities") with such powers, preferences and special rights and restrictions as are set forth in the Amended and Restated Trust Agreement of the Trust dated as of January --, 1997, as the same may be amended from time to time (the "Trust Agreement"); WHEREAS, First Banks shall directly or indirectly own all of the Common Securities of the Trust and shall issue the Debentures; NOW, THEREFORE, in consideration of the purchase by each holder of the Preferred Securities, which purchase First Banks hereby agrees shall benefit First Banks and which purchase First Banks acknowledges shall be made in reliance upon the execution and delivery of this Agreement, First Banks, including in its capacity as holder of the Common Securities, and the Trust hereby agree as follows: ARTICLE I SECTION 1.1. GUARANTEE BY FIRST BANKS. Subject to the terms and conditions hereof, First Banks, including in its capacity as holder of the Common Securities, hereby irrevocably and unconditionally guarantees to each person or entity to whom the Trust is now or hereafter becomes indebted or liable (the "Beneficiaries") the full payment when and as due, of any and all Obligations (as hereinafter defined) to such Beneficiaries. As used herein, "Obligations" means any costs, expenses or liabilities of the Trust other than obligations of the Trust to pay to holders of any Preferred Securities or other similar interests in the Trust the amounts due such holders pursuant to the terms of the Preferred Securities or such other similar interests, as the case may be. This Agreement is intended to be for the benefit of, and to be enforceable by, all such Beneficiaries, whether or not such Beneficiaries have received notice hereof. SECTION 1.2. TERM OF AGREEMENT. This Agreement shall terminate and be of no further force and effect upon the later of (a) the date on which full payment has been made of all amounts payable to all holders of all the Preferred Securities (whether upon redemption, liquidation, exchange or otherwise); and (b) the date on which there are no Beneficiaries remaining; provided, however, that this Agreement shall continue to be effective or shall be reinstated, as the case may be, if at any time any holder of Preferred Securities or any Beneficiary must restore payment of any sums paid under the Preferred Securities, under any obligation, under the D-1 58 Preferred Securities Guarantee Agreement dated the date hereof by First Banks and State Street Bank and Trust Company as guarantee trustee, or under this Agreement for any reason whatsoever. This Agreement is continuing, irrevocable, unconditional and absolute. SECTION 1.3. WAIVER OF NOTICE. First Banks hereby waives notice of acceptance of this Agreement and of any obligation to which it applies or may apply, and First Banks 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 First Banks 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, First Banks with respect to the happening of any of the foregoing. SECTION 1.5. ENFORCEMENT. A Beneficiary may enforce this Agreement directly against First Banks, and First Banks waives any right or remedy to require that any action be brought against the Trust or any other person or entity before proceeding against First Banks. 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 First Banks and shall inure to the benefit of the Beneficiaries. D-2 59 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): First Preferred Capital Trust c/o First Banks, Inc. 11901 Olive Boulevard St. Louis, MO 63141 Facsimile No.: (314) 567-3490 Attention: Chief Financial Officer First Banks, Inc. 11901 Olive Boulevard St. Louis, MO 63141 Facsimile No.: (314) 567-3490 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 Missouri (without regard to conflict of laws principles). THIS AGREEMENT is executed as of the day and year first above written. FIRST BANKS, INC. By:-------------------------------------- Name: Title: FIRST PREFERRED CAPITAL TRUST By:-------------------------------------- Name: Title: Administrative Trustee D-3 60 EXHIBIT E Certificate Number Number of Preferred Securities P- CUSIP NO. Certificate Evidencing Preferred Securities of First Preferred Capital Trust % Cumulative Trust Preferred Securities (liquidation amount $25 per Preferred Security) FIRST PREFERRED CAPITAL TRUST, 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 ----------% Cumulative 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. 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 January --, 1997, as the same may be amended from time to time (the "Trust Agreement"), including the designation of the terms of Preferred Securities as set forth therein. The Holder is entitled to the benefits of the Preferred Securities Guarantee Agreement entered into by First Banks, Inc., a Missouri corporation, and State Street Bank and Trust Company, as guarantee trustee, E-1 61 dated as of January ---, 1997 (the "Guarantee"), to the extent provided therein. The Trust shall furnish a copy of the Trust Agreement and the Guarantee to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon 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 January, 1997. FIRST PREFERRED CAPITAL TRUST By ------------------------------------ Name: Title: E-2 EX-4.7 7 PREF. SEC. GUAR. AGREE. FOR FIRST PREF. CAPITAL TRUST 1 EXHIBIT 4.7 2 ============================================================================== PREFERRED SECURITIES GUARANTEE AGREEMENT BY AND BETWEEN FIRST BANKS, INC. AND STATE STREET BANK AND TRUST COMPANY JANUARY --, 1997 ============================================================================== 3 TABLE OF CONTENTS
Page No. ARTICLE I DEFINITIONS AND INTERPRETATION . . . . . . . . 1 Section 1.1. Definitions and Interpretation. . . . . . . . 1 ARTICLE II TRUST INDENTURE ACT. . . . . . . . . . . . . . 4 Section 2.1. Trust Indenture Act; Application. . . . . . . 4 Section 2.2. Lists of Holders of Securities. . . . . . . . 4 Section 2.3. Reports by the Preferred Guarantee Trustee . . . . . . . . . . . . . . . . . . . 4 Section 2.4. Periodic Reports to Preferred Guarantee Trustee . . . . . . . . . . . . . . . . . . . 5 Section 2.5. Evidence of Compliance with Conditions Precedent . . . . . . . . . . . . . . . . . . 5 Section 2.6. Events of Default; Waiver . . . . . . . . . . 5 Section 2.7. Event of Default; Notice. . . . . . . . . . . 5 Section 2.8. Conflicting Interests . . . . . . . . . . . . 5 ARTICLE III POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE. . . . . . . . . . . . . . . 6 Section 3.1. Powers and Duties of the Preferred Guarantee Trustee . . . . . . . . . . . . . . 6 Section 3.2. Certain Rights of Preferred Guarantee Trustee . . . . . . . . . . . . . . . . . . . 7 Section 3.3. Not Responsible for Recitals or Issuance of Guarantee. . . . . . . . . . . . . . . . . 9 ARTICLE IV PREFERRED GUARANTEE TRUSTEE. . . . . . . . . . 9 Section 4.1. Preferred Guarantee Trustee; Eligibility. . . 9 Section 4.2. Appointment, Removal and Resignation of Preferred Guarantee Trustees. . . . . . . . . 9 ARTICLE V GUARANTEE. . . . . . . . . . . . . . . . . . . 10 Section 5.1. Guarantee . . . . . . . . . . . . . . . . . . 10 Section 5.2. Waiver of Notice and Demand . . . . . . . . . 10 Section 5.3. Obligations not Affected. . . . . . . . . . . 10 Section 5.4. Rights of Holders . . . . . . . . . . . . . . 11 Section 5.5. Guarantee of Payment. . . . . . . . . . . . . 12 Section 5.6. Subrogation.. . . . . . . . . . . . . . . . . 12 Section 5.7. Independent Obligations . . . . . . . . . . . 12 ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION. . . . . . . . . . . . . . . . . 12 Section 6.1. Limitation of Transactions. . . . . . . . . . 12 Section 6.2 Ranking . . . . . . . . . . . . . . . . . . . 12 ARTICLE VII TERMINATION. . . . . . . . . . . . . . . . . . 13 Section 7.1. Termination.. . . . . . . . . . . . . . . . . 13 ARTICLE VIII INDEMNIFICATION. . . . . . . . . . . . . . . . 13 Section 8.1. Exculpation . . . . . . . . . . . . . . . . . 13 Section 8.2. Indemnification . . . . . . . . . . . . . . . 13 i 4 ARTICLE IX MISCELLANEOUS. . . . . . . . . . . . . . . . . 14 Section 9.1. Successors and Assigns. . . . . . . . . . . . 14 Section 9.2. Amendments. . . . . . . . . . . . . . . . . . 14 Section 9.3. Notices.. . . . . . . . . . . . . . . . . . . 14 Section 9.4. Benefit . . . . . . . . . . . . . . . . . . . 15 Section 9.5. Governing Law.. . . . . . . . . . . . . . . . 15
ii 5 CROSS REFERENCE TABLE
Section of Trust Section of Indenture Act of Guarantee 1939, as amended Agreement ---------------- --------- 310(a) 4.1(a) 310(b) 4.1(c), 2.8 310(c) Not Applicable 311(a) 2.2(b) 311(b) 2.2(b) 311(c) Not Applicable 312(a) 2.2(a) 312(b) 2.2(b) 313 2.3 314(a) 2.4 314(b) Not Applicable 314(c) 2.5 314(d) Not Applicable 314(e) 1.1, 2.5, 3.2 314(f) 2.1, 3.2 315(a) 3.1(d) 315(b) 2.7 315(c) 3.1 315(d) 3.1(d) 316(a) 1.1, 2.6, 5.4 316(b) 5.3 317(a) 3.1 317(b) Not Applicable 318(a) 2.1(a) 318(b) 2.1 318(c) 2.1(b)
Note: This Cross-Reference Table does not constitute part of this Agreement and shall not affect the interpretation of any of its terms or provisions. iii 6 PREFERRED SECURITIES GUARANTEE AGREEMENT THIS PREFERRED SECURITIES GUARANTEE AGREEMENT (this "Preferred Securities Guarantee"), dated as of January ---, 1997, is executed and delivered by FIRST BANKS, INC., a Missouri corporation (the "Guarantor"), and STATE STREET BANK AND TRUST COMPANY, a banking corporation organized and existing under the laws of the State of Massachusetts, as trustee (the "Preferred Guarantee Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Preferred Securities (as defined herein) of First Preferred Capital Trust, a Delaware statutory business trust (the "Trust"). RECITALS WHEREAS, pursuant to an Amended and Restated Trust Agreement (the "Trust Agreement"), dated as of January --, 1997, among the trustees of the Trust named therein, the Guarantor, as depositor, and the holders from time to time of undivided beneficial interests in the assets of the Trust, the Trust is issuing on the date hereof - ------------------ preferred securities, having an aggregate liquidation amount of $-----------------------, designated the - --------% Cumulative Trust Preferred Securities (the "Preferred Securities"); WHEREAS, as incentive for the Holders to purchase the Preferred Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Preferred Securities Guarantee, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Preferred Securities Guarantee for the benefit of the Holders. ARTICLE I DEFINITIONS AND INTERPRETATION SECTION 1.1. DEFINITIONS AND INTERPRETATION. In this Preferred Securities Guarantee, unless the context otherwise requires: (a) capitalized terms used in this Preferred Securities Guarantee but not defined in the preamble above have the respective meanings assigned to them in this Section 1.1; (b) terms defined in the Trust Agreement as at the date of execution of this Preferred Securities Guarantee have the same meaning when used in this Preferred Securities Guarantee; (c) a term defined anywhere in this Preferred Securities Guarantee has the same meaning throughout; (d) all references to "the Preferred Securities Guarantee" or "this Preferred Securities Guarantee" are to this Preferred Securities Guarantee as modified, supplemented or amended from time to time; 7 (e) all references in this Preferred Securities Guarantee to Articles and Sections are to Articles and Sections of this Preferred Securities Guarantee, unless otherwise specified; (f) a term defined in the Trust Indenture Act has the same meaning when used in this Preferred Securities Guarantee, unless otherwise defined in this Preferred Securities Guarantee or unless the context otherwise requires; and (g) a reference to the singular includes the plural and vice versa. "Affiliate" has the same meaning as given to that term in Rule 405 of the Securities Act of 1933, as amended, or any successor rule thereunder. "Business Day" means any day other than a day on which federal or state banking institutions in New York, New York are authorized or required by law, executive order or regulation to close or a day on which the Corporate Trust Office of the Preferred Guarantee Trustee is closed for business. "Corporate Trust Office" means the office of the Preferred Guarantee Trustee at which the corporate trust business of the Preferred Guarantee Trustee shall, at any particular time, be principally administered, which office at the date of execution of this Agreement is located at 2 International Place, 5th Floor, Boston, Massachusetts 02110, Attention: Corporate Trust Trustee. "Covered Person" means any Holder or beneficial owner of Preferred Securities. "Debentures" means the ------------% Subordinated Debentures due March 31, 2027, of the Debenture Issuer held by the Property Trustee of the Trust. "Debenture Issuer" means the Guarantor. "Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Preferred Securities Guarantee. "Guarantor" means First Banks, Inc., a Missouri corporation. "Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by the Trust: (i) any accrued and unpaid Distributions (as defined in the Trust Agreement) that are required to be paid on such Preferred Securities, to the extent the Trust shall have funds available therefor, (ii) the redemption price, including all accrued and unpaid Distributions to the date of redemption (the "Redemption Price"), to the extent the Trust has funds available therefor, with respect to any Preferred Securities called for redemption by the Trust, and (iii) upon a voluntary or involuntary dissolution, winding-up or termination of the Trust (other than in connection with the distribution of Debentures to the Holders in exchange for Preferred Securities as provided in the Trust Agreement), the lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid Distributions on the Preferred Securities to the date of payment, to the extent the Trust shall have funds available therefor (the "Liquidation Distribution"), and (b) the amount of assets of the Trust remaining available for distribution to Holders in liquidation of the Trust. "Holder" shall mean any holder, as registered on the books and records of the Trust, of any Preferred Securities; provided, however, that, in determining whether the holders of the requisite 2 8 percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor or any Affiliate of the Guarantor. "Indemnified Person" means the Preferred Guarantee Trustee, any Affiliate of the Preferred Guarantee Trustee, or any officers, directors, shareholders, members, partners, employees, representatives, nominees, custodians or agents of the Preferred Guarantee Trustee. "Indenture" means the Indenture dated as of January ---, 1997, among the Debenture Issuer and State Street Bank and Trust Company, as trustee, and any indenture supplemental thereto pursuant to which certain subordinated debt securities of the Debenture Issuer are to be issued to the Property Trustee of the Trust. "Liquidation Distribution" has the meaning provided therefor in the definition of Guarantee Payments. "Majority in liquidation amount of the Preferred Securities" means the holders of more than 50% of the liquidation amount (including the stated amount that would be paid on redemption, liquidation or otherwise, plus accrued and unpaid Distributions to the date upon which the voting percentages are determined) of all of the Preferred Securities. "Officers' Certificate" means, with respect to any Person, a certificate signed by two authorized officers of such Person. Any Officers' Certificate delivered with respect to compliance with a condition or covenant provided for in this Preferred Securities Guarantee shall include: (a) a statement that each officer signing the Officers' Certificate has read the covenant or condition and the definition relating thereto; (b) a brief statement of the nature and scope of the examination or investigation undertaken by each officer in rendering the Officers' Certificate; (c) a statement that each such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of each such officer, such condition or covenant has been complied with. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association, or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Preferred Guarantee Trustee" means State Street Bank and Trust Company, until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Preferred Securities Guarantee and thereafter means each such Successor Preferred Guarantee Trustee. "Redemption Price" has the meaning provided therefor in the definition of Guarantee Payments. "Responsible Officer" means, with respect to the Preferred Guarantee Trustee, any officer within the Corporate Trust Office of the Preferred Guarantee Trustee, including any vice-president, any assistant 3 9 vice-president, any assistant secretary, the treasurer, any assistant treasurer or other officer of the Corporate Trust Office of the Preferred Guarantee Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Successor Preferred Guarantee Trustee" means a successor Preferred Guarantee Trustee possessing the qualifications to act as Preferred Guarantee Trustee under Section 4.1. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. ARTICLE II TRUST INDENTURE ACT SECTION 2.1. TRUST INDENTURE ACT; APPLICATION. (a) This Preferred Securities Guarantee is subject to the provisions of the Trust Indenture Act that are required to be part of this Preferred Securities Guarantee and shall, to the extent applicable, be governed by such provisions. (b) If and to the extent that any provision of this Preferred Securities Guarantee limits, qualifies or conflicts with the duties imposed by Section 310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall control. SECTION 2.2. LISTS OF HOLDERS OF SECURITIES. (a) The Guarantor shall provide the Preferred Guarantee Trustee with a list, in such form as the Preferred Guarantee Trustee may reasonably require, of the names and addresses of the Holders of the Preferred Securities ("List of Holders") as of such date, (i) within 1 Business Day after January 1 and June 30 of each year, and (ii) at any other time within 30 days of receipt by the Guarantor of a written request for a List of Holders as of a date no more than 15 days before such List of Holders is given to the Preferred Guarantee Trustee; provided, that the Guarantor shall not be obligated to provide such List of Holders at any time the List of Holders does not differ from the most recent List of Holders given to the Preferred Guarantee Trustee by the Guarantor. The Preferred Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Preferred Guarantee Trustee shall comply with its obligations under Sections 311(a), 311(b) and Section 312(b) of the Trust Indenture Act. SECTION 2.3. REPORTS BY THE PREFERRED GUARANTEE TRUSTEE. On or before July 15 of each year, the Preferred Guarantee Trustee shall provide to the Holders of the Preferred Securities such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Preferred Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. 4 10 SECTION 2.4. PERIODIC REPORTS TO PREFERRED GUARANTEE TRUSTEE. The Guarantor shall provide to the Preferred Guarantee Trustee such documents, reports and information as required by Section 314 (if any) and the compliance certificate required by Section 314 of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. SECTION 2.5. EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. The Guarantor shall provide to the Preferred Guarantee Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Preferred Securities Guarantee that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officers' Certificate. SECTION 2.6. EVENTS OF DEFAULT; WAIVER. The Holders of a Majority in liquidation amount of Preferred Securities may, by vote, on behalf of the Holders of all of the Preferred Securities, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Preferred Securities Guarantee, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 2.7. EVENT OF DEFAULT; NOTICE. (a) The Preferred Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default, transmit by mail, first class postage prepaid, to the Holders of the Preferred Securities, notices of all Events of Default actually known to a Responsible Officer of the Preferred Guarantee Trustee, unless such defaults have been cured before the giving of such notice; provided, that the Preferred Guarantee Trustee shall be protected in withholding such notice if and so long as a Responsible Officer of the Preferred Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders of the Preferred Securities. (b) The Preferred Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless the Preferred Guarantee Trustee shall have received written notice, or of which a Responsible Officer of the Preferred Guarantee Trustee charged with the administration of the Trust Agreement shall have obtained actual knowledge. SECTION 2.8. CONFLICTING INTERESTS. The Trust Agreement shall be deemed to be specifically described in this Preferred Securities Guarantee for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act. 5 11 ARTICLE III POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE SECTION 3.1. POWERS AND DUTIES OF THE PREFERRED GUARANTEE TRUSTEE. (a) This Preferred Securities Guarantee shall be held by the Preferred Guarantee Trustee for the benefit of the Holders of the Preferred Securities, and the Preferred Guarantee Trustee shall not transfer this Preferred Securities Guarantee to any Person except a Holder of Preferred Securities exercising his or her rights pursuant to Section 5.4(b) or to a Successor Preferred Guarantee Trustee on acceptance by such Successor Preferred Guarantee Trustee of its appointment to act as Successor Preferred Guarantee Trustee. The right, title and interest of the Preferred Guarantee Trustee shall automatically vest in any Successor Preferred Guarantee Trustee, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Preferred Guarantee Trustee. (b) If an Event of Default actually known to a Responsible Officer of the Preferred Guarantee Trustee has occurred and is continuing, the Preferred Guarantee Trustee shall enforce this Preferred Securities Guarantee for the benefit of the Holders of the Preferred Securities. (c) The Preferred Guarantee Trustee, before the occurrence of any Event of Default and after the curing of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Preferred Securities Guarantee, and no implied covenants shall be read into this Preferred Securities Guarantee against the Preferred Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6) and is actually known to a Responsible Officer of the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall exercise such of the rights and powers vested in it by this Preferred Securities Guarantee, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (d) No provision of this Preferred Securities Guarantee shall be construed to relieve the Preferred Guarantee Trustee from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) prior to the occurrence of any Event of Default and after the curing or waiving of all such Events of Default that may have occurred: (A) the duties and obligations of the Preferred Guarantee Trustee shall be determined solely by the express provisions of this Preferred Securities Guarantee, and the Preferred Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Preferred Securities Guarantee, and no implied covenants or obligations shall be read into this Preferred Securities Guarantee against the Preferred Guarantee Trustee; and (B) in the absence of bad faith on the part of the Preferred Guarantee Trustee, the Preferred Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Preferred Guarantee Trustee and conforming to the requirements of this Preferred Securities Guarantee; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Preferred Guarantee Trustee, the Preferred Guarantee Trustee shall be under a duty to 6 12 examine the same to determine whether or not they conform to the requirements of this Preferred Securities Guarantee; (ii) the Preferred Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Preferred Guarantee Trustee, unless it shall be proved that the Preferred Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such judgment was made; (iii) the Preferred Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation amount of the Preferred Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Preferred Guarantee Trustee, or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Preferred Securities Guarantee; and (iv) no provision of this Preferred Securities Guarantee shall require the Preferred Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Preferred Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Preferred Securities Guarantee or indemnity, reasonably satisfactory to the Preferred Guarantee Trustee, against such risk or liability is not reasonably assured to it. SECTION 3.2. CERTAIN RIGHTS OF PREFERRED GUARANTEE TRUSTEE. (a) Subject to the provisions of Section 3.1: (i) the Preferred Guarantee Trustee may conclusively rely, and shall be fully protected in acting or refraining from acting upon, any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties; (ii) any direction or act of the Guarantor contemplated by this Preferred Securities Guarantee shall be sufficiently evidenced by an Officers' Certificate; (iii) whenever, in the administration of this Preferred Securities Guarantee, the Preferred Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Preferred Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and conclusively rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor; (iv) the Preferred Guarantee Trustee shall have no duty to see to any recording, filing or registration of any instrument (or any rerecording, refiling or registration thereof); (v) the Preferred Guarantee Trustee may consult with counsel, and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and 7 13 protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Preferred Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Preferred Securities Guarantee from any court of competent jurisdiction; (vi) the Preferred Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Preferred Securities Guarantee at the request or direction of any Holder, unless such Holder shall have provided to the Preferred Guarantee Trustee such security and indemnity, reasonably satisfactory to the Preferred Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses and the expenses of the Preferred Guarantee Trustee's agents, nominees or custodians) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Preferred Guarantee Trustee; provided that, nothing contained in this Section 3.2(a)(vi) shall be taken to relieve the Preferred Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Preferred Securities Guarantee; (vii) the Preferred Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Preferred Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (viii) the Preferred Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents, nominees, custodians or attorneys, and the Preferred Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (ix) any action taken by the Preferred Guarantee Trustee or its agents hereunder shall bind the Holders of the Preferred Securities, and the signature of the Preferred Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Preferred Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Preferred Securities Guarantee, both of which shall be conclusively evidenced by the Preferred Guarantee Trustee's or its agent's taking such action; (x) whenever in the administration of this Preferred Securities Guarantee the Preferred Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Preferred Guarantee Trustee (i) may request instructions from the Holders of a Majority in liquidation amount of the Preferred Securities, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (iii) shall be protected in conclusively relying on or acting in accordance with such instructions. (b) No provision of this Preferred Securities Guarantee shall be deemed to impose any duty or obligation on the Preferred Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it in any jurisdiction in which it shall be illegal, or in which the Preferred Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Preferred Guarantee Trustee shall be construed to be a duty. 8 14 SECTION 3.3. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE. The Recitals contained in this Guarantee shall be taken as the statements of the Guarantor, and the Preferred Guarantee Trustee does not assume any responsibility for their correctness. The Preferred Guarantee Trustee makes no representation as to the validity or sufficiency of this Preferred Securities Guarantee. ARTICLE IV PREFERRED GUARANTEE TRUSTEE SECTION 4.1. PREFERRED GUARANTEE TRUSTEE; ELIGIBILITY. (a) There shall at all times be a Preferred Guarantee Trustee which shall: (i) not be an Affiliate of the Guarantor; and (ii) be a corporation organized and doing business under the laws of the United States of America or any State or Territory thereof or of the District of Columbia, or a corporation or Person permitted by the Securities and Exchange Commission to act as an institutional trustee under the Trust Indenture Act, authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $50,000,000, and subject to supervision or examination by Federal, State, Territorial or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority referred to above, then, for the purposes of this Section 4.1(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Preferred Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c). (c) If the Preferred Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 4.2. APPOINTMENT, REMOVAL AND RESIGNATION OF PREFERRED GUARANTEE TRUSTEES. (a) Subject to Section 4.2(b), the Preferred Guarantee Trustee may be appointed or removed without cause at any time by the Guarantor. (b) The Preferred Guarantee Trustee shall not be removed in accordance with Section 4.2(a) until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by written instrument executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor. (c) The Preferred Guarantee Trustee appointed to office shall hold office until a Successor Preferred Guarantee Trustee shall have been appointed or until its removal or resignation. The Preferred 9 15 Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Preferred Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Preferred Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Preferred Guarantee Trustee and delivered to the Guarantor and the resigning Preferred Guarantee Trustee. (d) If no Successor Preferred Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery to the Guarantor of an instrument of resignation, the resigning Preferred Guarantee Trustee may petition any court of competent jurisdiction for appointment of a Successor Preferred Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Preferred Guarantee Trustee. (e) No Preferred Guarantee Trustee shall be liable for the acts or omissions to act of any Successor Preferred Guarantee Trustee. (f) Upon termination of this Preferred Securities Guarantee or removal or resignation of the Preferred Guarantee Trustee pursuant to this Section 4.2, the Guarantor shall pay to the Preferred Guarantee Trustee all amounts accrued to the date of such termination, removal or resignation. ARTICLE V GUARANTEE SECTION 5.1. GUARANTEE. The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by the Trust), as and when due, regardless of any defense, right of set-off or counterclaim that the Trust may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Trust to pay such amounts to the Holders. SECTION 5.2. WAIVER OF NOTICE AND DEMAND. The Guarantor hereby waives notice of acceptance of this Preferred Securities Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Trust or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 5.3. OBLIGATIONS NOT AFFECTED. The obligations, covenants, agreements and duties of the Guarantor under this Preferred Securities Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Trust of any express or implied agreement, covenant, term or condition relating to the Preferred Securities to be performed or observed by the Trust; 10 16 (b) the extension of time for the payment by the Trust of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures or any extension of the maturity date of the Debentures permitted by the Indenture); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Trust granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust; (e) any invalidity of, or defect or deficiency in, the Preferred Securities; (f) any failure or omission to receive any regulatory approval or consent required in connection with the Preferred Securities (or the common equity securities issued by the Trust), including the failure to receive any approval of the Board of Governors of the Federal Reserve System required for the redemption of the Preferred Securities; (g) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (h) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 5.4. RIGHTS OF HOLDERS. (a) The Holders of a Majority in liquidation amount of the Preferred Securities have the right to direct the time, method and place of conducting of any proceeding for any remedy available to the Preferred Guarantee Trustee in respect of this Preferred Securities Guarantee or exercising any trust or power conferred upon the Preferred Guarantee Trustee under this Preferred Securities Guarantee. (b) Any Holder of Preferred Securities may institute a legal proceeding directly against the Guarantor to enforce its rights under this Preferred Securities Guarantee, without first instituting a legal proceeding against the Trust, the Preferred Guarantee Trustee or any other Person. 11 17 SECTION 5.5. GUARANTEE OF PAYMENT. This Preferred Securities Guarantee creates a guarantee of payment and not of collection. SECTION 5.6. SUBROGATION. The Guarantor shall be subrogated to all (if any) rights of the Holders of Preferred Securities against the Trust in respect of any amounts paid to such Holders by the Guarantor under this Preferred Securities Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Preferred Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Preferred Securities Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 5.7. INDEPENDENT OBLIGATIONS. The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Trust with respect to the Preferred Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Preferred Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (h), inclusive, of Section 5.3 hereof. ARTICLE VI LIMITATION OF TRANSACTIONS; SUBORDINATION SECTION 6.1. LIMITATION OF TRANSACTIONS. So long as any Preferred Securities remain outstanding, if there shall have occurred an Event of Default under this Preferred Securities Guarantee, an Event of Default under the Trust Agreement or during an Extended Interest Payment Period (as defined in the Indenture), then (a) the Guarantor shall not declare or pay any 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 (other than (i) the redemption of all or any part of the Guarantor's Class C 9.00% Increasing Rate, Redeemable, Cumulative Preferred Stock, or (ii) as a result of a reclassification of its capital stock for another class of its capital stock, or (iii) the conversion of the Guarantor's Class A Convertible, Adjustable Rate Preferred Stock to the Guarantor's common stock, par value $250.00 per share) and (b) the Guarantor shall not make any payment of interest or principal on or repay, repurchase or redeem any debt securities issued by the Guarantor which rank pari passu with or junior to the Debentures. SECTION 6.2 RANKING. This Preferred Securities Guarantee will constitute an unsecured obligation of the Guarantor and will rank (i) subordinate and junior in right of payment to all other liabilities of the Guarantor, (ii) pari passu with the most senior preferred securities or preference stock now or hereafter issued by the Guarantor and with any guarantee now or hereafter entered into by the Guarantor in respect of any 12 18 preferred securities or preference stock of any Affiliate of the Guarantor, and (iii) senior to the Guarantor's common stock. ARTICLE VII TERMINATION SECTION 7.1. TERMINATION. This Preferred Securities Guarantee shall terminate upon (i) full payment of the Redemption Price of all Preferred Securities, (ii) upon full payment of the amounts payable in accordance with the Trust Agreement upon liquidation of the Trust, or (iii) upon distribution of the Debentures to the Holders of the Preferred Securities. Notwithstanding the foregoing, this Preferred Securities Guarantee shall continue to be effective or shall be reinstated, as the case may be, if at any time any Holder of Preferred Securities must restore payment of any sums paid under the Preferred Securities or under this Preferred Securities Guarantee. ARTICLE VIII INDEMNIFICATION SECTION 8.1. EXCULPATION. (a) No Indemnified Person shall be liable, responsible or accountable in damages or otherwise to the Guarantor or any Covered Person for any loss, damage or claim incurred by reason of any act or omission performed or omitted by such Indemnified Person in good faith in accordance with this Preferred Securities Guarantee and in a manner that such Indemnified Person reasonably believed to be within the scope of the authority conferred on such Indemnified Person by this Preferred Securities Guarantee or by law, except that an Indemnified Person shall be liable for any such loss, damage or claim incurred by reason of such Indemnified Person's negligence or willful misconduct with respect to such acts or omissions. (b) An Indemnified Person shall be fully protected in relying in good faith upon the records of the Guarantor and upon such information, opinions, reports or statements presented to the Guarantor by any Person as to matters the Indemnified Person reasonably believes are within such other Person's professional or expert competence and who has been selected with reasonable care by or on behalf of the Guarantor, including information, opinions, reports or statements as to the value and amount of the assets, liabilities, profits, losses, or any other facts pertinent to the existence and amount of assets from which Distributions to Holders of Preferred Securities might properly be paid. SECTION 8.2. INDEMNIFICATION. The Guarantor agrees to indemnify each Indemnified Person for, and to hold each Indemnified Person harmless against, any loss, liability or expense incurred without negligence or bad faith on its part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses (including reasonable legal fees and expenses) of defending itself against, or investigating, any claim or liability in connection with the exercise or performance of any of its powers 13 19 or duties hereunder. The obligation to indemnify as set forth in this Section 8.2 shall survive the termination of this Preferred Securities Guarantee. ARTICLE IX MISCELLANEOUS SECTION 9.1. SUCCESSORS AND ASSIGNS. All guarantees and agreements contained in this Preferred Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Preferred Securities then outstanding. SECTION 9.2. AMENDMENTS. Except with respect to any changes that do not materially adversely affect the rights of Holders (in which case no consent of Holders will be required), this Preferred Securities Guarantee may only be amended with the prior approval of the Holders of at least a Majority in liquidation amount of the Preferred Securities. The provisions of Article VI of the Trust Agreement with respect to meetings of Holders of the Preferred Securities apply to the giving of such approval. SECTION 9.3. NOTICES. All notices provided for in this Preferred Securities Guarantee shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by registered or certified mail, as follows: (a) If given to the Preferred Guarantee Trustee, at the Preferred Guarantee Trustee's mailing address set forth below (or such other address as the Preferred Guarantee Trustee may give notice of to the Holders of the Preferred Securities): State Street Bank and Trust Company 2 International Place, 5th Floor Boston, Massachusetts 02110 Attention: Corporate Trust Trustee (b) If given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders of the Preferred Securities): First Banks, Inc. 135 North Meramec Avenue St. Louis, Missouri 63105 Attention: Mr. James F. Dierberg Chairman, President and Chief Executive Officer (c) If given to any Holder of Preferred Securities, at the address set forth on the books and records of the Trust. 14 20 All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 9.4. BENEFIT. This Preferred Securities Guarantee is solely for the benefit of the Holders of the Preferred Securities and, subject to Section 3.1(a), is not separately transferable from the Preferred Securities. SECTION 9.5. GOVERNING LAW. THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF MISSOURI. This Preferred Securities Guarantee is executed as of the day and year first above written. FIRST BANKS, INC., as Guarantor By:--------------------------------- Name:------------------------------- Title:------------------------------ STATE STREET BANK AND TRUST COMPANY, as Preferred Guarantee Trustee By:--------------------------------- Name:------------------------------- Title:------------------------------ 15 EX-5.1 8 OPINION RE LEGALITY 1 EXHIBIT 5.1 2 [Letterhead of Lewis, Rice & Fingersh] December 20, 1996 First Banks, Inc. 135 North Meramec Ave. St. Louis, Missouri 63105 Attention: Board of Directors First Preferred Capital Trust c/o First Banks, Inc. 135 North Meramec Ave. St. Louis, Missouri 63105 Attention: Administrative Trustees Gentlemen: We have acted as counsel to First Banks, Inc., a Missouri corporation (the "Company"), and First Preferred Capital Trust, a Delaware statutory business trust ("First Capital"), in connection with the preparation of a Registration Statement on Form S-2 (the "Registration Statement") to be filed by the Company and First Capital with the Securities and Exchange Commission (the "SEC") for the purpose of registering under the Securities Act of 1933, as amended, preferred securities (the "Preferred Securities") of First Capital, subordinated debentures (the "Subordinated Debentures") of the Company and the guarantee of the Company with respect to the Preferred Securities (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 (the "Certificate of Trust") filed by First Capital with the Secretary of State of the State of Delaware on December 13, 1996; (ii) the Trust Agreement, dated as of December 12, 1996, with respect to First Capital; (iii) the form of the Amended and Restated Trust Agreement with respect to First Capital; (iv) the form of the Preferred Securities of First Capital; (v) the form of the Guarantee between the Company and State Street Bank and Trust Company, as trustee; (vi) the form of the Subordinated Debentures; and (vii) the form of the indenture (the "Indenture"), between the Company and State Street Bank and 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 copies and the authenticity of the originals of such copies. In examining documents executed by parties other than the Company or First Capital, we have assumed that such parties had the power, corporate or otherwise, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or otherwise, 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 First Capital, the Preferred Securities of First Capital, the Guarantee, the Subordinated Debentures and the Indenture, when executed, will be executed in substantially the form reviewed by us. As to any facts material to the 3 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, First Capital, and others. We are members of the bar of the states of Missouri and Illinois, 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 hereto, 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 under the caption "Validity of Securities" in the Prospectus forming a part of the Registration Statement and to the inclusion of this legal opinion as an Exhibit to the Registration Statement. Very truly yours, LEWIS, RICE & FINGERSH, L.C. /s/ Lewis, Rice & Fingersh, L.C. EX-5.2 9 OPINION RE LEGALITY 1 EXHIBIT 5.2 2 DECEMBER 20, 1996 First Preferred Capital Trust c/o First Banks, Inc. 11901 Olive Boulevard St. Louis, Missouri 63141 Re: First Preferred Capital Trust ----------------------------- Ladies and Gentlemen: We have acted as special Delaware counsel for First Preferred Capital Trust, 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 December 12, 1996 (the "Certificate"), as filed in the office of the Secretary of State of the State of Delaware (the "Secretary of State") on December 13, 1996; (b) The Trust Agreement of the Trust, dated as of December 12, 1996, among First Banks, Inc., a Missouri corporation (the "Company"), 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 collectively, the "Preferred Securities"), as filed by the Company and the Trust as set forth therein with the Securities and Exchange Commission on December ---, 1996; (d) A form of Amended and Restated Trust Agreement of the Trust, to be entered into among the Company, 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 December ---, 1996, obtained from the Secretary of State. 3 First Preferred Capital Trust December 20, 1996 Page 2 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 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 order thereunder which are currently in effect. 4 First Preferred Capital Trust December 20, 1996 Page 3 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. Sec. 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, and other Person for any purpose. Very truly yours, /s/ Richards, Layton & Finger EAM EX-8.1 10 OPINION OF EXPERT 1 EXHIBIT 8.1 2 [Letterhead of Lewis, Rice & Fingersh] December 20, 1996 First Banks, Inc. 11901 Olive Boulevard St. Louis, MO 63141 RE: FIRST PREFERRED CAPITAL TRUST Ladies and Gentlemen: We have acted as tax counsel to First Banks, Inc., a Missouri corporation (the "Company"), and to First Preferred Capital Trust, a statutory business trust created under the laws of Delaware (the "Trust"), in connection with the proposed issuance of (i) Preferred Securities (the "Preferred Securities") of the Trust pursuant to the terms of the Amended and Restated Trust Agreement between the Company and State Street Bank and Trust Company, as trustee (the "Trust Agreement"), to be offered in an underwritten public offering, (ii) Subordinated Debentures (the "Debentures") of the Company pursuant to the terms of an indenture from the Company to State Street Bank and Trust Company, as trustee (the "Indenture"), to be sold by the Company to the Trust, and (iii) the Preferred Securities Guarantee Agreement of the Company with respect to the Preferred Securities (the "Guarantee") between the Company and State Street Bank and Trust Company, as trustee. The Preferred Securities and the Debentures are to be issued as contemplated by the registration statement on Form S-2 (the "Registration Statement") to be filed by the Company and the Trust to register the issuance of the Preferred Securities, the Debentures and the Guarantee under the Securities Act of 1933, as amended (the "Act"). We have examined originals or copies, certified or otherwise identified to our satisfaction, of documents, corporate records and other instruments as we have deemed necessary or appropriate for purposes of this opinion including (i) the Registration Statement, (ii) the Form of Indenture attached as an exhibit to the Registration Statement, (iii) the Form of the Debentures attached as an exhibit to the Registration Statement (iv) the Form of Trust Agreement attached as an exhibit to the Registration Statement, (v) the Form of Guarantee attached as an exhibit to the Registration Statement, and (vi) the Form of Preferred Security Certificate attached as an exhibit to the Registration Statement (collectively the "Documents"). In such examination, we have assumed 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, the authenticity of the originals of such latter documents, the genuineness of all signatures and the correctness of all representations made therein. We have further assumed that there are no agreements or understandings contemplated therein other than those contained in the Documents. Based upon the foregoing, and assuming (i) the final Documents will be substantially identical to the forms attached as exhibits to the Registration Statement, and (ii) full compliance with all the terms of the final Documents we are of the opinion that the statements contained in the preliminary prospectus constituting part of the Registration Statement under the caption "Certain Federal Income Tax Consequences," insofar as such statements constitute matters of law or legal conclusions, as qualified therein, constitute an accurate description, in general terms, of the indicated United States federal income tax consequences to such holders. 3 The opinion expressed above is based on existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), existing Treasury regulations, published interpretations of the Code and such Treasury regulations by the Internal Revenue Service, and existing court decisions, any of which could be changed at any time. Any such changes may or may not be retroactively applied. We note that there is no authority directly on point dealing with securities such as the Preferred Securities or of transactions of the type described herein. Further, you should be aware that opinions of counsel are not binding on the Internal Revenue Service or the courts. We express no opinion as to any matters not specifically covered by the foregoing opinions or as to the effect on the matters covered by this opinion of the laws of any other jurisdiction. Additionally, we undertake no obligation to update this opinion in the event there is either a change in the legal authorities, in the facts (including the taking of any action by any party to any of the transactions described in the Documents relating to such transactions) or in the Documents on which this opinion is based, or an inaccuracy in any of the representations or warranties upon which we have relied in rendering this opinion. This letter is not being delivered for the benefit of, nor may it be relied upon by, the holders of the Debentures, the Guarantee or the Preferred Securities or any other party to which it is not specifically addressed or on which reliance is not expressly permitted hereby. We hereby consent to the filing of this opinion as Exhibit to the Registration Statement and to reference to our firm under the caption "Certain Federal Income Tax Consequences" and "Validity of Securities" in the preliminary prospectus constituting a part of the Registration Statement. Very truly yours, Lewis, Rice & Fingersh, L.C /s/ Lewis, Rice & Fingersh, L.C. EX-10.6 11 SECURED CREDIT AGREEMENT 1 EXHIBIT 10.6 2 $90,000,000 SECURED CREDIT AGREEMENT ------------------------ ($50,000,000 TERM LOAN) ($40,000,000 REVOLVING LOAN) DATED AS OF JULY 18, 1996 AMONG FIRST BANKS, INC. AND THE BOATMEN'S NATIONAL BANK OF ST. LOUIS AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO HARRIS TRUST AND SAVINGS BANK THE FROST NATIONAL BANK NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION AND THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, AS AGENT 3 TABLE OF CONTENTS -----------------
Page ---- ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS 1 Section 1.01. Defined Terms 1 Section 1.02. Accounting Terms 8 ARTICLE II. AMOUNT AND TERMS OF TERM LOANS 8 Section 2.01. Term Loans 8 Section 2.02. Manner of Disbursement 8 Section 2.03. Interest on Term Loans 8 Section 2.04. Notice of Interest Rate Selection 9 Section 2.05. Repayment of Term Loans; Application of Payments 11 Section 2.06. Optional Prepayment 11 Section 2.07. Term Notes 11 Section 2.08. Method of Payment 12 Section 2.09. Use of Term Loan Proceeds 12 Section 2.10. Advances and Payments 12 Section 2.11. Reimbursement 12 Section 2.12. No Renewal Option 13 ARTICLE III. AMOUNT AND TERMS OF REVOLVING LOAN AND LETTERS OF CREDIT 13 Section 3.01. Commitments 13 Section 3.02. Revolving Credit 13 Section 3.03. Termination or Reduction of Revolving Loan Commitment 13 Section 3.04. Interest on Revolving Loans. 14 Section 3.05. Notice and Manner of Borrowing 14 Section 3.06. Revolving Notes 16 Section 3.07. Method of Payment 17 Section 3.08. Use of Proceeds 17 Section 3.09. Zero Balance 17 Section 3.10. Advances and Payment 17 Section 3.11. Revolving Loan Commitment Fee 18 Section 3.12. Reimbursement 18 Section 3.13. Agreement to Issue Letters of Credit 18 Section 3.14. Letter of Credit Requests 19 Section 3.15. Letter of Credit Participation 20 Section 3.16. Agreement to Repay Letter of Credit Drawings 21 Section 3.17. Notice of Letter of Credit Outstandings. 23 Section 3.18. Deemed Disbursements; Cash Collateralization 23 Section 3.19. Failure of Any Bank to Make Revolving Loans or Participate in Letters of Credit 23 Section 3.20. Letter of Credit Fees 24 Section 3.21. Banks Not Required to Extend Credit 25 ARTICLE IV. CONDITIONS PRECEDENT 25 Section 4.01. Conditions Precedent to the Term Loans and Initial Revolving Loans 25 i 4 Section 4.02. Conditions Precedent to All Revolving Loans 26 ARTICLE V. REPRESENTATIONS AND WARRANTIES 27 Section 5.01. Incorporation, Good Standing, and Due Qualification 27 Section 5.02. Corporate Power and Authority 27 Section 5.03. Legally Enforceable Agreement 28 Section 5.04. Financial Statements; Financial Condition 28 Section 5.05. Other Agreements 28 Section 5.06. Litigation 28 Section 5.07. Ownership of Subsidiaries 29 Section 5.08. ERISA 29 Section 5.09. Taxes 29 ARTICLE VI. AFFIRMATIVE COVENANTS 29 Section 6.01. Maintenance of Existence 29 Section 6.02. Maintenance of Records 30 Section 6.03. Maintenance of Subsidiaries 30 Section 6.04. Compliance With Laws 30 Section 6.05. Right of Inspection 30 Section 6.06. Reporting Requirements 30 Section 6.07. Operations 32 Section 6.08. Additional Collateral 32 ARTICLE VII. NEGATIVE COVENANTS 32 Section 7.01. Liens 32 Section 7.02. Mergers, Etc 32 Section 7.03. Indebtedness 33 Section 7.04. Dividends 33 Section 7.05. Stock Issue; Additional Issue of Stock of Subsidiary 33 Section 7.07. Loans 34 Section 7.08. Continuation of Business 34 ARTICLE VIII. FINANCIAL COVENANTS 35 Section 8.01. Tier I Leverage Ratio 35 Section 8.02. Tier I Leverage Ratio of Subsidiaries 35 Section 8.03. Tier I Risk Based Capital Ratio 35 Section 8.04. Total Risk Based Capital Ratio 35 Section 8.05. Loan Loss Reserve 36 Section 8.06. Net Income to Average Total Assets 36 Section 8.07. Non-Performing Assets 36 ARTICLE IX. EVENTS OF DEFAULT 36 Section 9.01. Events of Default 36 ARTICLE X. AUTHORITY AND RESPONSIBILITIES OF AGENT 39 Section 10.01. Grant of Authority 39 Section 10.02. Action upon Indemnification Instructions 39 ii 5 Section 10.03. Reports; Responsibility of the Agent; Disclaimer 39 Section 10.04. Correction of Errors 40 Section 10.05. Expenses; Indemnification 40 Section 10.06. Rights as Bank 41 Section 10.07. Representation of Each Bank 41 Section 10.08. Rights to Resign; Appointment of a Successor Agent 41 Section 10.09. Notice of Default 42 Section 10.10. Agent Compensation 42 ARTICLE XI. MISCELLANEOUS 42 Section 11.01. Capital Adequacy Reimbursement 42 Section 11.02. Amendments, Etc 43 Section 11.03. Notices, Etc 43 Section 11.04. No Waiver; Remedies 43 Section 11.05. Successors and Assigns 43 Section 11.06. Costs and Expenses 44 Section 11.07. Right of Setoff 44 Section 11.08. Sharing of Setoffs 44 Section 11.09. Governing Law; Jurisdiction and Venue 45 Section 11.10. Severability of Provisions 45 Section 11.11. Counterparts 45 Section 11.12. Headings 45 Section 11.13. Oral Agreements 45 EXHIBIT A TERM LOAN COMMITMENT AMOUNTS 47 EXHIBIT B TERM NOTE 48 EXHIBIT C NOTICE OF INTEREST RATE SELECTION 50 EXHIBIT D REVOLVING LOAN COMMITMENT AMOUNTS 51 EXHIBIT E REVOLVING CREDIT NOTE 52 EXHIBIT F NOTICE OF BORROWING 54 EXHIBIT G PLEDGE AGREEMENT 55 iii 6 EXHIBIT G-1 SUBSIDIARY PLEDGE AGREEMENT 61 EXHIBIT H CERTIFICATE OF COMPLIANCE 67 EXHIBIT I FORM OF LETTER OF CREDIT 72 EXHIBIT J LETTER OF CREDIT REQUEST 75 EXHIBIT K FORM OF BORROWER'S COUNSEL OPINION 77 EXHIBIT L PLEDGED SUBSIDIARIES 83 EXHIBIT M LIST OF AFFILIATES 84 EXHIBIT N IDENTIFICATION OF FINANCIAL STATEMENTS 85 EXHIBIT O OWNERSHIP OF SUBSIDIARIES 86 EXHIBIT P LIST OF ADDRESSES 88 SCHEDULE 3.13 OUTSTANDING LETTERS OF CREDIT 90 SCHEDULE 5.05 OTHER AGREEMENTS 91 SCHEDULE 5.06 iv 7 LITIGATION 92 SCHEDULE 5.08 PLAN TERMINATIONS 93 SCHEDULE 9.01(10) REGULATORY ACTIONS 94
v 8 SECURED CREDIT AGREEMENT THIS SECURED CREDIT AGREEMENT dated as of July 18, 1996, is entered into by and among FIRST BANKS, INC., a Missouri corporation ("Borrower"), and THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, a national -------- banking association, AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, a national banking association, HARRIS TRUST AND SAVINGS BANK, an Illinois state banking corporation, THE FROST NATIONAL BANK, a national banking association, and NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking association (each individually a "Bank" and collectively the "Banks"), and THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, a national banking association, as Agent. W I T N E S S E T H T H A T : WHEREAS, Borrower has requested that the Banks severally make a term loan to Borrower in the aggregate amount of Fifty Million Dollars ($50,000,000) (as the same may be renewed, extended, amended, rearranged, restructured, refinanced, replaced or otherwise modified from time to time, including without limitation, modifications to interest rates or other payment terms, the "Term Loan"); and --------- WHEREAS, Borrower has requested that the Banks severally make available to Borrower a revolving credit and letter of credit facility in the aggregate amount of Forty Million Dollars ($40,000,000) (as the same may be renewed, extended, amended, rearranged, restructured, refinanced, replaced or otherwise modified from time to time, including without limitation, modifications to interest rates or other payment terms, the "Revolving Loan"); and -------------- WHEREAS, the Banks are willing severally to provide such loan and facility to the Borrower, subject to the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto hereby agree as follows: ARTICLE I. DEFINITIONS AND ACCOUNTING TERMS -------------------------------- Section I.01. Defined Terms. As used in this Agreement, the ------------- following terms have the following meanings (terms defined in the singular to have the same meaning when used in the plural and vice versa): "Affiliate" means any Person (1) which directly or indirectly --------- controls, or is controlled by, or is under common control with, the Borrower or any Subsidiary; (2) which directly or indirectly beneficially owns or holds (i) five percent (5%) or more of any class of voting stock of Borrower or any Subsidiary, except any class of voting stock of First Banks America, Inc., or (ii) five percent (5%) or more of all voting stock of First Banks America, Inc., or (3) five percent (5%) or more of the voting stock of which is directly or indirectly beneficially owned or held by Borrower or any Subsidiary. The term "Control" for the purposes of this Agreement means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise. For the purposes of the foregoing definition, a shareholder of Borrower 1 9 shall not be deemed to be directly or indirectly controlling or controlled by the Borrower or a subsidiary, provided the person in question will not receive any proceeds from the Loans. "Agent" means The Boatmen's National Bank of St. Louis, acting ----- in its capacity as Agent pursuant to Article X hereof and any duly appointed successor. "Agreement" means this Secured Credit Agreement, as amended, --------- supplemented or modified from time to time. "Agreement and Plan of Reorganization" has the meaning assigned ------------------------------------ to such term in Section 3.13(1). "Bank" or "Banks" has the meaning assigned to such term in the ---- ----- preamble to this Agreement. "Borrower" has the meaning assigned to such term in the preamble -------- of this Agreement. "Business Day" means any day other than a Saturday, Sunday, or ------------ other day on which commercial banks are authorized or required to close under the laws of the States of Missouri, Illinois, Texas or California. "Call Report" has the meaning assigned to such term in Section ----------- 6.06(4). "Certificate" has the meaning assigned to such term in Section ----------- 3.05. "Collateral" means all property which is subject or is to be ---------- subject to the Liens granted by the Pledge Agreement and/or the Subsidiary Pledge Agreements. "Commitment" means the collective several commitments of the ---------- Banks in the aggregate original principal amount of $90,000,000, or when used with reference to a particular Bank, the portion of the collective several commitments allocated to such Bank, (i) to make loans to the Borrower pursuant to Section 2.01, in an amount equal to the amount stated in Exhibit A, and (ii) to make loans to the Borrower pursuant to Section --------- 3.01 and to participate in Letters of Credit pursuant to Section 3.15 in an amount equal to the amount stated in Exhibit D, as such amount may be --------- reduced from time to time pursuant to Section 3.03 hereof. "Corporate Base Rate" means the rate of interest announced by ------------------- The Boatmen's National Bank of St. Louis (or its successor) from time to time as its Corporate Base Rate, which rate is not intended or represented to be the lowest rate of interest charged by such Bank to its borrowers. "Default" means any of the events specified in Section 9.01, ------- whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Drawing" has the meaning assigned to such term in Section 3.15. ------- "Equity Capital" for any Person, for any period, means the -------------- amount set forth on the most recent report on form FRY-9C filed by Borrower with the Board of Governors of the Federal Reserve System (or any successor report) applicable to such period as "Total Equity Capital." 2 10 "ERISA" means the Employee Retirement Income Security Act of ----- 1974, as amended from time to time, and the regulations and published interpretations thereof. "ERISA Affiliate" means any trade or business (whether or not --------------- incorporated) which together with the Borrower would be treated as a single employer under Section 4001 of ERISA. "Eurodollar Rate" means, for the applicable Interest Period, if --------------- any, an interest rate per annum equal to the rate per annum (rounded upward to the nearest whole multiple of 1/16 of 1% per annum, if such average is not such a multiple) at which deposits in United States Dollars are offered or available to banks in the London interbank market at 11:00 A.M. (London time) two (2) Business Days before the first day of such Interest Period as reported on Telerate Screen page 3750 for a period equal to such Interest Period for the amount of the subject Eurodollar Rate Loan. The Eurodollar Rate for each respective Interest Period, if any, shall be determined by the Agent two (2) Business Days before the first day of such Interest Period. "Event of Default" means any of the events specified in Section ---------------- 9.01, provided that any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Federal Funds Rate" means, for any day, the rate per annum ------------------ (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates of overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate quoted to the Agent on such day on such transactions as determined by the Agent. "GAAP" means generally accepted accounting principles in the ---- United States as in effect from time to time, including such principles as are utilized in the preparation of Call Reports and other regulatory reports required to be filed by Borrower and its Subsidiaries. "Gain on Sale of Securities" for any Person, for any period, -------------------------- means the amount set forth on the most recent report on form FRY-9C filed by Borrower with the Board of Governors of the Federal Reserve System (or any successor report) applicable to such period as "Realized gains (losses) on held-to-maturity securities" and "Realized gains (losses) on available for-sale securities." "Interest Period" means the period commencing on the date of --------------- making or conversion to or continuation of a Loan to the Eurodollar Rate. The Borrower shall have the option to select a one month, two month, or three month Interest Period; provided, however, that whenever the last day -------- ------- of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day; provided, however, that if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day. Notwithstanding the foregoing, the Borrower may not select an Interest Period: (i) if after giving effect thereto the Borrower will be unable to make a principal payment scheduled to be made during such Interest Period without paying part of the Loan accruing at the Eurodollar Rate on a date other than the last day of the Interest Period applicable thereto; or (ii) which ends after the Term Loan Maturity Date (with respect to Term Loans) or the Revolving Credit Termination Date (with respect to Revolving Loans). For purposes 3 11 of determining an Interest Period, a month means a period starting on one day in a calendar month and ending on a numerically corresponding day in the next calendar month, provided, however, if an Interest Period begins on the last ----------------- day of a month or if there is no numerically corresponding day in the month in which an Interest Period is to end, then such Interest Period shall end on the last Business Day of such month. "L/C Coverage Requirement" means, with respect to each Letter of ------------------------ Credit, the sum of 100% of the Stated Amount of such Letter of Credit plus the amount of Letter of Credit Fees and other fees expected to become payable to the Agent and the Banks in respect thereof during the life of such Letter of Credit which have not theretofore been paid. "Letter of Credit" has the meaning assigned to such term in ---------------- Section 3.13. "Letter of Credit Fee" has the meaning assigned to such in -------------------- Section 3.20. "Letter of Credit Fee Payment Date" has the meaning assigned to --------------------------------- such term in Section 3.20. "Letter of Credit Outstandings" means, at any time, without ----------------------------- duplication, the sum of (a) the aggregate Stated Amount of all outstanding Letters of Credit, and (b) the aggregate amount of all Unpaid Drawings. "Letter of Credit Participation" has the meaning assigned to ------------------------------ such term in Section 3.15. "Letter of Credit Request" has the meaning assigned to such term ------------------------ in Section 3.14. "Lien" means any mortgage, deed of trust, pledge, security ---- interest, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), or preference, priority, or other security agreement or preferential arrangement, charge, or encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction to evidence any of the foregoing). "Loan Loss Reserve" for any Person, for any period, means the ----------------- amount set forth on the most recent report on form FRY-9C filed by Borrower with the Board of Governors of the Federal Reserve System (or any successor report) applicable to such period as "Allowance for loan and lease losses." "Loan Document(s)" means this Agreement, the Notes, the Pledge ---------------- Agreement, the Subsidiary Pledge Agreements and any and all letter of credit applications completed by the Borrower pursuant to Section 3.14 hereof. "Loans" means the Revolving Loans and the Term Loan. ----- "Majority" has the meaning assigned to such term in Section -------- 10.01. "Multiemployer Plan" means a Plan described in Section ------------------ 4001(a)(3) of ERISA which covers employees of a Borrower or any ERISA Affiliate. 4 12 "Net Income" for any period means the amount set forth on the ---------- report on form FRY-9C filed by Borrower with the Board of Governors of the Federal Reserve System or any successor report applicable to such period as "Net Income." "Non-performing Assets" for any Person, for any period, means --------------------- the sum of the amounts set forth on the most recent report on form FRY-9C filed by Borrower with the Board of Governors of the Federal Reserve System (or any successor report) applicable to such period as loans "past due 90 days or more and still accruing," "non-accrual," and "other real estate owned." "Notes" means the Revolving Notes and Term Notes. ----- "Notice of Borrowing" has the meaning assigned to such term in ------------------- Section 3.05. "Notice of Interest Rate Selection" has the meaning assigned to --------------------------------- such in Section 2.04. "PBGC" means the Pension Benefit Guaranty Corporation or any ---- entity succeeding to any or all of its functions under ERISA. "Person" means an individual, partnership, corporation, business ------ trust, joint stock company, trust, unincorporated association, joint venture, governmental authority, or other juridical entity of whatever nature. "Plan" means any employee benefit or other plan established, ---- maintained, or to which contributions have been made by the Borrower or any ERISA Affiliate. "Pledge Agreement" means the collateral pledge agreement in the ---------------- form of Exhibit G, pledging to the Agent for the ratable benefit of the --------- Banks all of the stock of the Pledged Subsidiaries (exclusive of directors' qualifying shares of stock) and certain stock acquired after the date of this Agreement. "Pledged Subsidiaries" means the Subsidiaries listed on Exhibit L -------------------- --------- attached hereto. "Primary Capital" for any Person, for any period and without --------------- duplication, means the sum of Equity Capital plus the Loan Loss Reserve of such Person. "Prohibited Transaction" means any transaction set forth in ---------------------- Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1954, as amended from time to time. "Repayment Tranche" has the meaning assigned to such term in ----------------- Section 2.04. "Reportable Event" means any of the events set forth in Section ---------------- 4043 of ERISA. "Revolving Credit Termination Date" means July 11, 1997. --------------------------------- "Revolving Loans" has the meaning assigned to such term in --------------- Section 3.02. "Revolving Loan Limit" has the meaning assigned to such term in -------------------- Section 3.02. "Revolving Loan Commitment" means, as to each Bank, the maximum ------------------------- amount which such Bank shall be obligated to loan to Borrower as a Revolving Loan pursuant to Section 3.02 hereof. 5 13 "Revolving Loan Commitment Fee" has the meaning assigned to such ----------------------------- term in Section 3.11. "Revolving Notes" has the meaning assigned to such term in --------------- Section 3.06. "St. Charles Letter of Credit" has the meaning assigned to such ---------------------------- term in Section 3.13(1). "Stated Amount" means, with respect to each Letter of Credit, ------------- the maximum amount available to be drawn thereunder, determined without regard to whether any conditions to drawing then could be met. "Subsidiary" means, as to Borrower, any corporation of which ---------- shares of stock having ordinary voting power (other than stock having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation are at the time owned, or the management of which corporation is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by a Borrower or a Subsidiary of Borrower. "Subsidiary Pledge Agreements" means the collateral pledge ---------------------------- agreements (subsidiary) in the form of Exhibit G-1, pledging to the Agent ----------- for the ratable benefit of the Banks all of the stock of the Subsidiary listed on the Subdiary Pledge Agreement Exhibit A attached thereto (exclusive of directors' qualifying shares of stock) and certain stock acquired after the date of this Agreement. "Term Loans" has the meaning assigned to such term in Section ---------- 2.01. "Term Loan Commitment" means, as to each Bank, the amount which -------------------- such Bank shall be obligated to loan to Borrower as a Term Loan pursuant to Section 2.01 hereof. "Term Loan Maturity Date" means July 12, 2000. ----------------------- "Term Notes" has the meaning assigned to such term in Section ---------- 2.07. "Tier I Leverage Ratio" means the ratio, expressed as a --------------------- percentage, of regulatory "core" capital (Tier I) to assets, all as defined and determined from time to time by applicable bank regulatory authorities. "Tier I Risk Based Capital Ratio" means the ratio of regulatory ------------------------------- "core" capital (Tier I) to weighted-risk assets and off-balance sheet items, all as defined and determined from time to time by applicable bank regulatory authorities. "Total Assets" for any Person, for any period, means the amount ------------ set forth on the most recent report on form FRY-9C filed by Borrower with the Board of Governors of the Federal Reserve System (or any successor report) applicable to such period as "Total Assets." "Total Loans" means, at any time, the amount set forth on the ----------- most recent report on form FRY-9C filed by Borrower with the Board of Governors of the Federal Reserve System (or any successor report) as the total of "Loans and Leases, net of unearned income." 6 14 "Total Risk Based Capital Ratio" of any Person means, at any ------------------------------ time, the ratio of regulatory "core" capital (Tier I) and supplementary capital elements (Tier II) to weighted-risk assets and off-balance sheet items, all as defined and determined from time by applicable bank regulatory authorities. "Unpaid Drawings" means as of any date, the aggregate of all --------------- payments made by the Agent under any Letter of Credit which have not been reimbursed by the Borrower pursuant to Section 3.16. "Watch List" means a summary of loans or other assets of ---------- Borrower and each Pledged Subsidiary which have been adversely classified or placed on a "watch list" by Borrower or a Pledged Subsidiary, as the case may be, for the purpose of adverse classification of loans. Section I.02. Accounting Terms. All accounting terms not ---------------- specifically defined herein shall be construed in accordance with GAAP consistent with those applied in the preparation of the financial statements and reports referred to in Section 6.06, and all financial data submitted pursuant to this Agreement shall be prepared in accordance with such principles. ARTICLE II. AMOUNT AND TERMS OF TERM LOANS ------------------------------ Section II.01. Term Loans. ---------- (1) Each Bank, severally and not jointly, shall, upon the terms and subject to the conditions of this Agreement (including, without limitation, the terms and conditions of Article IV hereof), lend to the Borrower the proceeds of a term loan, in the amounts equal to each Bank's Term Loan Commitment as set forth opposite such Bank's name in Exhibit A --------- (collectively the "Term Loan"). --------- (2) The aggregate principal amount of the Term Loans shall be Fifty Million Dollars ($50,000,000) and shall be made severally by the Banks in accordance with their respective Term Loan Commitments. (3) The Term Loans will bear interest in accordance with the terms of Section 2.03. (4) The failure of any Bank to make a Term Loan shall not relieve any other Bank of its obligation to make a Term Loan pursuant to the terms and conditions of this Agreement. Section II.02. Manner of Disbursement. The Term Loans shall ---------------------- be disbursed, in full, on the date hereof. Section II.03. Interest on Term Loans. The Borrower shall ---------------------- pay interest on the outstanding and unpaid principal amount of the Term Loans from the date hereof until they shall be due (at maturity, whether by reason of acceleration or otherwise) at the following intervals and at the following rates per annum: (1) Corporate Base Rate. When accruing interest at the ------------------- Corporate Base Rate, a fluctuating rate per annum equal to the Corporate Base Rate in effect from time to time. Any change in the interest rate resulting from a change in the Corporate Base Rate shall become effective as of the opening of business on the day on which such change in the Corporate Base 7 15 Rate shall become effective. Interest shall be calculated on the basis of the actual number of days elapsed over a year of 360 days. Interest shall be paid in immediately available funds on or before 12:00 Noon (St. Louis time) on the first day of each calendar month beginning August 1, 1996, and on the Term Loan Maturity Date. In the event of receipt of funds after 12:00 Noon (St. Louis time) on the date of payment, the funds shall be deemed to be received on the next Business Day, and the accrual of interest shall be calculated accordingly; (2) Eurodollar Rate. When accruing interest at the Eurodollar --------------- Rate, a rate per annum equal at all times during the applicable Interest Period to the sum of the Eurodollar Rate for such Interest Period plus one and one-half percent (1.5%) per annum. Interest shall be calculated on the basis of the actual number of days elapsed over a year of 360 days. Interest shall be paid in immediately available funds on or before 12:00 Noon (St. Louis time) on the first day of each calendar month beginning August 1, 1996, and on the Term Loan Maturity Date. In the event of receipt of funds after 12:00 Noon (St. Louis time) on the date of payment, the funds shall be deemed to be received on the next Business Day, and the accrual of interest will be calculated accordingly; provided, however, that, from and after the occurrence of an Event of - -------- ------- Default and unless and until such Event of Default is waived, the Borrower shall pay interest on the unpaid principal amount of the Term Loan at a rate per annum equal at all times to four percent (4%) per annum above the interest rate otherwise in effect from time to time, such interest being payable on demand. The Agent shall give prompt notice to the Borrower and the Banks of the applicable interest rate determined by the Agent for purposes of this Section 2.03 Section II.04. Notice of Interest Rate Selection. --------------------------------- (1) Except as otherwise provided herein, the Term Loan shall bear interest at the Corporate Base Rate. Subject to the terms and conditions of this Agreement, Borrower shall have the option to have interest on the Term Loan accrue at the Eurodollar Rate or at the Corporate Base Rate; provided, however, that the Borrower shall, at the end of an -------- ------- Interest Period, have the option to have interest on a portion of the Term Loan in an amount equal to the next principal payment then scheduled to be made hereunder (the "Repayment Tranche") accrue at the Corporate Base Rate ----------------- and have interest on the remaining portion of the Term Loan accrue at the Eurodollar Rate. The Borrower shall give the Agent (who shall promptly notify the Banks) telephonic notice (followed immediately by written or telex notice) of any election by Borrower to change the interest rate applicable to the Term Loan or to select a new Interest Period in the event the Term Loan is then accruing interest at the Eurodollar Rate. Such notice of interest rate selection (a "Notice of Interest Rate Selection") shall be --------------------------------- substantially in the form of Exhibit C hereto. At least three (3) Business --------- Days before (i) the date on which Borrower desires to convert the interest rate applicable to the Term Loan from the Corporate Base Rate to the Eurodollar Rate or (ii) the end of the then current Interest Period, the Borrower shall give the Agent (who shall promptly notify the Banks) a Notice of Interest Rate Selection specifying the new Interest Period; if no such notice is given (or, if Borrower is not entitled to deliver such notice pursuant to the terms hereof), the Term Loan shall bear interest at the Corporate Base Rate from and after the expiration of such Interest Period. The Borrower shall have no right to effect the conversion of the applicable interest rate from the Eurodollar Rate to the Corporate Base Rate other than as of the end of an Interest Period. All notices given under this Section 2.04 shall be irrevocable and binding on the Borrower and telephonic notices shall be given not later than 11:00 A.M. (St. Louis time) on the day which is not later than the number of Business Days specified above for such notice. If a Default or Event of Default exists hereunder, the Borrower shall not have the right to request a Eurodollar Rate of interest, and in the event the Term Loan is then accruing at the Eurodollar Rate, the then current interest rate (if after the occurrence of an Event of Default) shall be revised to be the Eurodollar 8 16 Rate plus five and one-half percent (5.5%) (as set forth in Section 2.03) and at the end of the then current Interest Period the Term Loan, if then accruing at the Eurodollar Rate and such Default or Event of Default is then continuing, shall immediately and automatically and without the necessity of any further action by the Borrower, the Banks, or the Agent, accrue at the Corporate Base Rate (plus four percent (4%) if after the occurrence of an Event of Default) in the same principal amount, and any costs and expenses incurred by virtue of such conversion (including without limitation the costs and expenses identified in Section 11.06(2)) shall be promptly paid by Borrower to the Agent on the demand of the Agent and the outstanding principal balance of the Term Loan shall thereafter accrue at the Corporate Base Rate (plus four percent (4%) if after the occurrence of an Event of Default). (2) Anything in subsection (1) above to the contrary notwithstanding, (a) if the Agent shall notify the Borrower that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other governmental authority asserts that it is unlawful, for the Agent or any of the Banks to perform its obligations hereunder, the right of Borrower to continue or convert the Term Loan to the Eurodollar Rate shall be suspended until the Agent shall notify the Borrower that the circumstances causing such suspension no longer exist, and the outstanding portion of the Term Loan accruing at the Eurodollar Rate shall immediately and automatically upon the sending of such notice and without the necessity of any further action by the Borrower, the Banks, or the Agent accrue at the Corporate Base Rate in the same principal amount, and any costs and expenses incurred by virtue of such conversion (including without limitation the costs and expenses identified in Section 11.06(2)) shall be promptly paid by Borrower to the Agent on the demand of the Agent; and (b) if the Agent is unable, after reasonable efforts, due to prevailing market conditions, to provide timely information for the determination of the Eurodollar Rate, or is otherwise unable to determine the Eurodollar Rate at any time, the right of the Borrower to select, continue or convert the Term Loan to the Eurodollar Rate shall be suspended until the Agent shall notify Borrower that the circumstances causing such suspension no longer exist, and the outstanding principal balance of the Term Loan shall accrue at the Corporate Base Rate. Section II.05. Repayment of Term Loans; Application of --------------------------------------- Payments. The Term Loans in the aggregate shall be due and payable and - -------- shall be repaid by the Borrower as follows: (1) Beginning August 1, 1996, and on the 1st day of each November, February, May and August thereafter until May 1, 2000, Borrower shall pay quarterly installments of principal in the amount of Two Million Five Hundred Thousand Dollars ($2,500,000) each; (2) On the Term Loan Maturity Date, Borrower shall pay all unpaid principal and accrued and unpaid interest under the Term Loan. 9 17 Section II.06. Optional Prepayment. ------------------- (1) If the outstanding balance of the Revolving Notes hereunder is zero ($00.00), the Borrower, upon five (5) Business Days prior written notice to the Agent, may prepay the Term Loan in whole or in part, without premium or penalty, by paying the principal amount to be prepaid together with accrued and unpaid interest thereon to the date of prepayment; provided, however, that from time to time, including such times when the - -------- ------- outstanding balance of the Revolving Notes is greater than zero ($0.00), the Borrower, upon five (5) Business Days prior written notice to the Agent, may prepay the Repayment Tranche in whole, but not in part, without premium or penalty, by paying the principal amount to be prepaid together with accrued and unpaid interest thereon to the date of prepayment. If Borrower prepays the Term Loan, or a portion thereof, which is accruing at the Eurodollar Rate, the Borrower shall compensate the Agent for the account of the Banks in accordance with Section 11.06(2). (2) Each notice of prepayment shall specify the date and amount of such prepayment and that it relates to the Term Loan. Any notice of prepayment shall be irrevocable. The Agent shall promptly notify the Banks of its receipt of such notice of prepayment. Each partial prepayment of the Term Loan (other than prepayments of the Repayment Tranche) shall be in an aggregate principal amount which is the lesser of (i) the then outstanding principal balance of the Term Loan, or (ii) Five Hundred Thousand Dollars ($500,000) and integral multiples of Fifty Thousand Dollars ($50,000) in excess thereof, and shall be applied to the reduction of principal in the inverse order of maturity. Each prepayment of the Repayment Tranche shall be in the aggregate principal amount of the Repayment Tranche and shall be applied to the reduction of principal in the forward order of maturity. (3) Amounts prepaid pursuant to this Section 2.06 may not be reborrowed. Section II.07. Term Notes. The Term Loan made by each Bank ---------- and the Borrower's obligation to repay such Term Loan shall be evidenced by, and be payable with interest in accordance with the terms of this Agreement and a term note of the Borrower payable to the order of that Bank (collectively, the "Term Notes"). Each Term Note shall (i) be dated the ---------- date hereof, (ii) be in the original principal amount equal to that Bank's Term Loan Commitment as set forth opposite such Bank's name in Exhibit A, --------- and (iii) be executed by a duly authorized officer of the Borrower. Each Bank's Term Note shall be in substantially the form of Exhibit B. --------- Section II.08. Method of Payment. Borrower shall make each ----------------- payment under the Term Notes (including prepayments) not later than 12:00 Noon (St. Louis time) on the date when due in lawful money of the United States to the Agent by wire transfer of federal funds. Upon receipt of such payment the Agent shall immediately remit to each Bank by wire transfer of federal funds the amount of the payment received which is due each Bank under the Term Note held by each Bank or otherwise under this Agreement. In the event of receipt of funds after 12:00 Noon (St. Louis time) on the date of payment, the funds shall be deemed to be received on the next Business Day and the accrual of interest will be calculated accordingly. Whenever any payment to be made under this Agreement or under the Term Notes shall be stated to be due on a day which is not a Business Day, the amount of such payment shall be made on the next succeeding Business Day, the amount of such payment, in such case, to include all interest and fees accrued to the date of actual payment. Section II.09. Use of Term Loan Proceeds. The proceeds of ------------------------- the Term Loan hereunder shall be used by Borrower to refinance existing acquisition debt of Borrower. The Borrower will not use any part of such proceeds for the purposes of: (i) paying dividends on or other distributions with respect to the capital stock of Borrower; or (ii) purchasing or carrying any 10 18 margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or to extend credit to others for the purpose of purchasing of carrying any such margin stock. Section II.10. Advances and Payments. The Term Loans shall --------------------- be made by each of the Banks concurrently. Each payment and prepayment of the Term Loan and the Term Notes made to the Agent for the account of the Banks shall be made pro rata on the basis of each Bank's Term Loan Commitment as set forth in Exhibit A. --------- Section II.11. Reimbursement. ------------- Whenever any Bank shall sustain or incur any losses or out-of-pocket expenses in connection with: (1) the failure by the Borrower to pay the principal amount of the Term Loan when due (whether at maturity, by reason of acceleration, notice of prepayment/termination by Borrower or otherwise); (2) the repayment of overdue amounts of the Term Loan; or (3) the acceleration of the maturity date of the Term Notes by reason of the occurrence of an Event of Default, the Borrower shall pay to the Agent, upon its demand and for the account of the Banks, an amount certified in writing by the Agent as the amount required to reimburse the Banks and the Agent for all reasonable losses and out-of-pocket expenses claimed. All determinations, estimates, assumptions, allocations and the like required for the determination thereof shall be made by the Agent in good faith and the Agent's determination thereof shall be final and binding and conclusive upon the Borrower in the absence of manifest error. Section II.12. No Renewal Option. This Agreement may not be ----------------- extended in relation to the Term Loan made pursuant to this Article II, irrespective of whether this Agreement shall be extended in relation to the Revolving Loans pursuant to Article III, except upon the mutual written consent of the Borrower and each Bank. ARTICLE III. AMOUNT AND TERMS OF REVOLVING LOAN AND LETTERS OF CREDIT -------------------------------------------------------- Section III.01. Commitments. Subject to the terms and ----------- conditions of this Agreement (including, without limitation, the terms and conditions of Article IV hereof), the Banks severally and not jointly agree ---------- from time to time on any Business Day during the period from the date of this Agreement to the Revolving Credit Termination Date to: (1) make Loans to the Borrower as set forth in Section 3.02 and subject to the terms and conditions of this Agreement; and (2) issue for the account of the Borrower (in the case of the Agent) or participate in (in the case of all other Banks) Letters of Credit as set forth in Sections 3.13 and 3.15 and subject to the terms and conditions of this Agreement. 11 19 Section III.02. Revolving Credit. The Banks, severally and ---------------- not jointly, shall, upon the terms and conditions of this Agreement, make loans (collectively, the "Revolving Loans") to the Borrower from time to --------------- time during the period from the date hereof up to but not including the Revolving Credit Termination Date in individual amounts not to exceed each Bank's Revolving Loan Commitment as set forth opposite such Bank's name in Exhibit D, the aggregate principal amount of which at any time shall not - --------- exceed Forty Million Dollars ($40,000,000) (the "Revolving Loan Limit") . -------------------- Any amounts advanced and repaid by Borrower shall be treated as prepayments and shall be eligible for reborrowing by Borrower in the absence of a Default or an Event of Default, subject to the terms and conditions of this Agreement. Section III.03. Termination or Reduction of Revolving Loan ------------------------------------------ Commitment. The Borrower shall have the right, upon at least fifteen (15) - ---------- Business Days' notice to the Agent, to terminate in whole or reduce in part the unused portion of the Revolving Loan Commitment. Any such reduction by Borrower of the Revolving Loan Commitment shall result in a pro rata reduction of each Bank's Revolving Loan Commitment. Section III.04. Interest on Revolving Loans. The Borrower --------------------------- shall pay interest on the outstanding and unpaid principal amount of the Revolving Loans made under this Agreement at the following intervals and at the following rates per annum: (1) Corporate Base Rate. If such Revolving Loan is accruing ------------------- at the Corporate Base Rate, a fluctuating rate per annum equal to the Corporate Base Rate in effect from time to time. Any change in the interest rate resulting from a change in the Corporate Base Rate shall become effective as of the opening of business on the day on which such change in the Corporate Base Rate shall become effective. Interest shall be calculated on the basis of the actual number of days elapsed over a year of 360 days. Interest shall be paid in the immediately available funds on or before 12:00 Noon (St. Louis time) on the first day of each calendar month beginning August 1, 1996, and on the Revolving Credit Termination Date. In the event of receipt of funds after 12:00 Noon (St. Louis time) on the date of payment, the funds shall be deemed to be received on the next Business Day, and the accrual of interest will be calculated accordingly; (2) Eurodollar Rate. If such Revolving Loan is accruing at the --------------- Eurodollar Rate, a rate per annum equal at all times during the applicable Interest Period for such Revolving Loan to the sum of the Eurodollar Rate for such Interest Period plus one and one-quarter percent (1.25%) per annum, payable on the first day of each calendar month and on the Revolving Credit Termination Date. Interest shall be calculated on the basis of the actual number of days elapsed over a year of 360 days. Interest shall be paid in the immediately available funds on or before 12:00 Noon (St. Louis time) on the first day of each calendar month beginning August 1, 1996 and on the Revolving Credit Termination Date. In the event of receipt of funds after 12:00 Noon (St. Louis time) on the date of payment, the funds shall be deemed to be received on the next Business Day, and the accrual of interest will be calculated accordingly; provided, however, that, from and after the occurrence of an Event of -------- ------- Default and unless and until such Event of Default is waived, the Borrower shall pay interest on the unpaid principal amount of the Revolving Loan at a rate per annum equal at all times to four percent (4%) per annum above the interest rate otherwise in effect from time to time with respect to each Revolving Loan then outstanding, such interest being payable on demand. The Agent shall give prompt notice to the Borrower and the Banks of the applicable interest rate determined by the Agent for purposes of this Section 3.04. 12 20 Section III.05. Notice and Manner of Borrowing. ------------------------------ (1) The Borrower shall give the Agent (who shall promptly notify the Banks) telephonic notice (followed immediately by written or telex notice) of any request for a Revolving Loan under this Agreement at least five (5) Business Days before each Revolving Loan, specifying (i) the date, purpose and amount thereof, and (ii) the interest rate applicable to such Revolving Loan. Such notice of borrowing (a "Notice of Borrowing") ------------------- shall be substantially in the form of Exhibit F hereto. Each such request --------- shall be accompanied by a Compliance Certificate (the "Certificate") in the ----------- form of Exhibit H hereto. At least three (3) Business Days before the end --------- of each Interest Period, the Borrower shall give the Agent (who shall promptly notify the Banks) a Notice of Borrowing with respect to the relevant Revolving Loan accruing at the Eurodollar Rate specifying the new Interest Period or, in the event that the relevant Revolving Loan is to accrue at the Corporate Base Rate, specifying the same. In the event that in any Notice of Borrowing hereunder the interest rate of the Revolving Loan to be advanced is not specified (or if Borrower is not entitled to request a Eurodollar Rate loan pursuant to the terms hereof), the Revolving Loan to be advanced shall accrue at the Corporate Base Rate. Each Revolving Loan shall be in an amount of at least One Million Dollars ($1,000,000) and integral multiples of One Hundred Thousand Dollars ($100,000) in excess thereof or, if less, the unused amount of the Revolving Loan Commitment. Not later than 2:00 P.M. (St. Louis time) on the date of such Revolving Loan and upon fulfillment of the applicable conditions set forth herein, the Banks via the Agent will make such Revolving Loan available to the Borrower in immediately available funds by wire transfer of federal funds to the Borrower. Upon the request (in writing) of the Borrower, the Agent and the Banks shall use their reasonable best efforts to make such Revolving Loans available to the Borrower prior to 2:00 P.M. (St. Louis time), provided, however, neither the -------- ------- Agent nor the Banks shall have any liability to the Borrower or any other Person for any failure to provide such funds prior to 2:00 P.M. (St. Louis time) pursuant to such request. All notices given under this Section 3.04 shall be irrevocable, and telephonic notices shall be given not later than 11:00 A.M. (St. Louis time) on the day which is not later than the number of Business Days specified above for such notice. If a Default or Event of Default exists hereunder, the Borrower shall not have the right to request a Eurodollar Rate of interest, the then current interest rate with respect to Revolving Loans then accruing at the Eurodollar Rate (if after the occurrence of an Event of Default) shall be revised to be the Eurodollar Rate plus five and one-quarter percent (5.25%) (as set forth in Section 3.04), and at the end of an Interest Period if such Default or Event of Default still exists, a Revolving Loan accruing at the Eurodollar Rate shall immediately and automatically, and without necessity of any further act by the Borrower, the Banks or the Agent be refinanced by a Revolving Loan accruing at the Corporate Base Rate (plus four percent (4%) if after the occurrence of an Event of Default) in the same principal amount, and any costs and expenses incurred by virtue of such refinancing (including without limitation the costs and expenses identified in Section 11.06(2)) shall be promptly paid by Borrower to the Agent on the demand of the Agent, and all the Revolving Loans shall thereafter accrue at the Corporate Base Rate (plus four percent (4%) if after the occurrence of an Event of Default). (2) Anything in subsection (1) above to the contrary notwithstanding, (a) if the Agent shall notify the Borrower that the introduction of or any change in or in the interpretation of any law or regulation makes it unlawful, or that any central bank or other governmental authority asserts that it is unlawful, for the Agent or any of the Banks to perform its obligations hereunder with respect to the making of a Revolving Loan accruing at the Eurodollar Rate or to fund or maintain a Revolving Loan at the Eurodollar Rate hereunder, the right of the Borrower to select, continue or convert a Revolving Loan to the Eurodollar Rate shall be suspended until the Agent shall notify the Borrower that the circumstances causing such 13 21 suspension no longer exist, and the outstanding Revolving Loans accruing at the Eurodollar Rate shall immediately and automatically upon the sending of such notice and without the necessity of any further act by the Borrower, the Banks or the Agent be refinanced by Revolving Loans in the same principal amount, and any costs and expenses incurred by virtue of such refinancing (including without limitation the costs and expenses identified in Section 11.06(2)) shall be promptly paid by Borrower to the Agent on the demand of the Agent and all of the Revolving Loans shall thereafter accrue at the Corporate Base Rate; (b) if the Agent is unable, after reasonable efforts, due to prevailing market conditions, to provide timely information for the determination of the Eurodollar Rate, or is otherwise unable to determine the Eurodollar Rate at any time, the right of the Borrower to select, continue or convert a Revolving Loan to the Eurodollar Rate shall be suspended until the Agent shall notify Borrower that the circumstances causing such suspension no longer exist, and the requested Revolving Loan shall accrue at the Corporate Base Rate; and (c) if, at any time, five (5) or more Revolving Loans are accruing at an interest rate based upon the Eurodollar Rate with Interest Periods ending on different days, Borrower shall not have the right to select the Eurodollar Rate as the interest rate applicable to any new Revolving Loan or convert the interest rate applicable to an existing Revolving Loan from the Corporate Base Rate to the Eurodollar Rate. (3) The Notice of Borrowing shall be irrevocable and binding on the Borrower. In the case of a Notice of Borrowing which specifies a request for a Eurodollar Rate of interest, the Borrower shall indemnify the Agent and the Banks against any loss, reasonable costs or expense incurred by the Agent and/or the Banks as a result of any failure to fulfill on or before the date specified in the Notice of Borrowing as the date of the Revolving Loan the applicable conditions set forth in Article IV, including, without limitation, any loss (including loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Agent and/or the Banks to fund the Eurodollar Rate of interest when such Revolving Loan, as a result of such failure, is not made on such date. Section III.06. Revolving Notes. The Revolving Loan made by --------------- each Bank and the Borrower's obligation to repay such Revolving Loan shall be evidenced by, and be payable with interest in accordance with the terms of, this Agreement and a revolving note of the Borrower payable to the order of that Bank (collectively, the "Revolving Notes"). Each Revolving Note --------------- shall (i) be dated the date hereof, (ii) be in the original principal amount equal to that Bank's Revolving Loan Commitment as set forth opposite such Bank's name in Exhibit D, and (iii) be executed by duly authorized officers --------- of the Borrower. Each Bank's Revolving Note shall be in substantially the form of Exhibit E. The failure of any Bank to make a Revolving Loan shall --------- not relieve any other Bank of its obligation to make a Revolving Loan pursuant to the terms and conditions of this Agreement. When used in this Agreement, the term "Revolving Note" or "Revolving Notes" shall include any extensions, modifications, renewals, refundings, replacements or restatements thereof. Section III.07. Method of Payment. Borrower shall make each ----------------- payment under this Agreement and under the Revolving Notes not later than 12:00 Noon (St. Louis time) on the date when due in lawful money of the United States to the Agent by wire transfer of federal funds. Upon receipt of such payment the Agent shall immediately remit to each Bank by wire transfer of federal funds the amount of the payment received which is due each Bank under the Revolving Note held by each Bank or otherwise under this Agreement. In the event of receipt of funds after 12:00 Noon (St. Louis time) on the date of payment, the funds shall be deemed to be received on the next Business Day and the accrual of interest will be calculated accordingly. Whenever any payment to be made under this Agreement or under a Revolving Note shall be stated to be due on a 14 22 day which is not a Business Day, such payment shall be made on the next succeeding Business Day, the amount of such payment, in such case, to include all interest or fees accrued to the date of actual payment. Section III.08. Use of Proceeds. The proceeds of the --------------- Revolving Loans hereunder shall be used by Borrower to finance the acquisition by Borrower of banks and thrift institutions and their holding companies, including, without limitation, the refinancing of existing indebtedness of the Borrower incurred in connection with prior bank and bank holding company acquisitions. The Borrower will not, directly or indirectly, use any part of the proceeds of the Revolving Loans for the purpose of: (i) paying dividends on or other distributions with respect to capital stock of Borrower; (ii) paying interest on outstanding debt of Borrower; or (iii) purchasing or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or to extend credit to others for the purpose of purchasing or carrying any such margin stock. Section III.09. Zero Balance. The Banks and the Borrower ------------ acknowledge that the outstanding balance of the Revolving Notes may be zero ($00.00) from time to time, and that prior to the Revolving Credit Termination Date such fact shall not mean the Revolving Loan Commitment and the availability of the Revolving Loans have been terminated. Section III.10. Advances and Payment. The Revolving Loans -------------------- shall be made by each of the Banks concurrently. Each payment and prepayment of the Revolving Loans made to the Agent for the account of the Banks shall be made pro rata on the basis of each Bank's Revolving Loan Commitment as set forth in Exhibit D. If the Borrower prepays any Revolving --------- Loan or a portion thereof which is accruing at the Eurodollar Rate, the Borrower shall compensate the Banks in accordance with Section 11.06(2). Any such prepayment shall be made upon at least three (3) Business Days' notice to the Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given, the Borrower shall prepay such principal amount of the Revolving Loan together with accrued interest to the date of such prepayment on the principal amount prepaid; provided, -------- however, that each partial prepayment shall be in an aggregate principal - ------- amount of not less than One Hundred Thousand Dollars ($100,000) and integral multiples of Fifty Thousand Dollars ($50,000) in excess thereof, and provided further, that a partial prepayment shall not reduce the principal - ---------------- balance of each Revolving Loan below the minimum levels prescribed in Section 3.05. In the event more than one Revolving Loan accruing at the Eurodollar Rate is outstanding at the time of any such prepayment, the Borrower shall have the right to specify which such Revolving Loan is to be prepaid by the Borrower. Section III.11. Revolving Loan Commitment Fee. Borrower shall ----------------------------- pay to Agent for the account of the Banks on a pro-rata basis, within twenty (20) days from the date of the Agent's invoice therefor, a Revolving Loan Commitment Fee (the "Revolving Loan Commitment Fee") at the rate of ----------------------------- one-eighth of one percent (0.125%) per annum on the average daily unused portion of the Revolving Loan Commitment. The Revolving Loan Commitment Fee shall be payable quarterly in arrears commencing on November 1, 1996 (which payment shall include the period commencing on the date hereof), February 1, 1997, May 1, 1997 and on the Revolving Credit Termination Date. The Revolving Loan Commitment Fee shall be computed on the basis of a year deemed to consist of 360 days and paid for the actual number of days elapsed. The amount of Revolving Loans outstanding from time to time and the amount of Letter of Credit Outstandings from time to time are considered uses of the Revolving Loan Commitment. Section III.12. Reimbursement. ------------- 15 23 Whenever any Bank shall sustain or incur any losses or out-of-pocket expenses in connection with: (1) the failure by the Borrower to pay the principal amount of any Revolving Loan when due (whether at maturity, by reason of acceleration, notice of prepayment/termination by Borrower or otherwise); (2) the repayment of overdue amounts of any Revolving Loan; (3) the acceleration of the maturity date of any Revolving Note by reason of the occurrence of an Event of Default; or (4) the failure by Borrower to make any payment to the Agent with respect to any Letter of Credit when due; the Borrower shall pay to the Agent, upon its demand and for the account of the Banks, an amount certified in writing by the Agent as the amount required to reimburse the Banks for all reasonable losses and out-of-pocket expenses claimed. All determinations, estimates, assumptions, allocations and the like required for the determination thereof shall be made by the Agent in good faith and the Agent's determination thereof shall be final and binding and conclusive upon the Borrower in the absence of manifest error. Section III.13. Agreement to Issue Letters of Credit. ------------------------------------ (1) From and including the date hereof to but excluding the Revolving Credit Termination Date, the Banks severally agree, on the terms and conditions set forth in this Agreement, that the Borrower from time to time may request that the Agent issue for the account of the Borrower and in support of certain obligations of the Borrower to the former shareholders of St. Charles Federal Bancshares, Inc. arising out of that certain Agreement and Plan of Reorganization dated March 28, 1994 (the "Agreement and Plan of --------------------- Reorganization") by and among the Borrower, St. Charles Federal Bancshares - -------------- Inc. and St. Charles Acquisition Company, on an offering and as available basis, one or more irrevocable standby letters of credit (each a "Letter of --------- Credit") in substantially the form attached hereto as Exhibit I and in an - ------ aggregate Stated Amount not to exceed $1,136,777.28. For purposes of this Agreement, those currently outstanding letters of credit described on Schedule 3.13 hereof shall be deemed to be Letters of ------------- Credit requested by the Borrower under the terms hereof. (2) The Agent hereby agrees that during the period from and including the date hereof to but excluding the Revolving Credit Termination Date, it will, following receipt by the Agent of a Letter of Credit Request, subject to Article IV hereof, issue Letters of Credit (in substantially the form attached hereto as Exhibit I), provided that the Agent shall not be --------- under any obligation to issue any Letter of Credit if at the time of such issuance: (a) any order, judgment or decree of any governmental authority or arbitrator shall purport by its terms to enjoin or restrain the Agent from issuing such Letter of Credit or any requirement of law applicable to the Agent or any request or directive (whether or not having the force of law) from any governmental authority with jurisdiction over the Agent shall prohibit, or request that the Agent refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Agent with respect to such Letter of Credit any restriction or reserve or capital requirement (for which the Agent is not otherwise 16 24 compensated) not in effect on the date hereof, or any unreimbursed loss, cost or expense which was not applicable, in effect or known to the Agent as of the date hereof and which the Agent deems material to it; (b) the Agent shall have received notice from any Bank prior to the issuance of such Letter of Credit of the type described in the last sentence of Section 3.14(2); (c) after giving effect to such issuance, the sum of the aggregate amount of Revolving Loans outstanding plus the amount of Letter of Credit Outstandings would exceed the aggregate amount of the Revolving Loan Commitment; or (d) the Agent shall have received notice of a default by any party under the Agreement and Plan of Reorganization. Section III.14. Letter of Credit Requests. ------------------------- (1) Whenever the Borrower wishes a Letter of Credit to be issued for its account, it shall give the Agent (who shall promptly notify the Banks) at least ten (10) Business Days' prior written request therefor. Each such request shall include all of the information required by Exhibit J --------- and shall be in writing and executed by the Borrower and shall include a completed letter of credit application on the form customarily used by the Agent for similar transactions (each, a "Letter of Credit Request"). ------------------------ (2) The making of each Letter of Credit Request shall be deemed to be a representation and warranty by the Borrower that such Letter of Credit may be issued in accordance with, and will not violate the requirements of, Section 3.13 and that each of the applicable conditions specified in Article IV has been satisfied. Unless the Agent receives a notice from any Bank prior to its issuance of a Letter of Credit that one or more of the applicable conditions specified in Article IV are not then satisfied, or that the issuance of such Letter of Credit would violate Section 3.13, the Agent may issue the requested Letter of Credit for the account of the Borrower in accordance with its customary practices. Section III.15. Letter of Credit Participation. ------------------------------ (1) Immediately upon the issuance by the Agent of any Letter of Credit (or any amendment with respect to a previously issued Letter of Credit) pursuant to this Article III and without further action, the Agent shall be deemed to have sold and transferred to each Bank, and each Bank shall be deemed irrevocably and unconditionally to have purchased and received from the Agent, pro rata on the basis of each Bank's Revolving Loan Commitment as set forth in Exhibit D, without recourse or warranty, an --------- undivided interest and participation in such Letter of Credit of the Agent, any substitute letter of credit with respect thereto, each drawing made thereunder (each a "Drawing") and the obligations of the Borrower under this ------- Agreement with respect thereto, and any security therefor (a "Letter of --------- Credit Participation"). - -------------------- (2) In determining whether to make a payment under any Letter of Credit, the Agent shall have no obligation to the Banks other than to confirm that the documents required to be delivered under such Letter of Credit appear to have been delivered and to comply on their face with the terms and conditions of such Letter of Credit. No action taken or omitted to be taken by the Agent in good faith under or in connection with any Letter of Credit, shall result in liability of the Agent to any Bank in the absence of gross negligence or willful misconduct by the Agent. 17 25 (3) In the event that the Borrower shall not reimburse in full pursuant to Section 3.16 any amount paid by the Agent, the Agent shall notify each Bank and each Bank shall promptly and unconditionally pay to the Agent for the account of the Agent, the amount of such Bank's ratable share of such unreimbursed payment pro rata on the basis of each Bank's Revolving Loan Commitment as set forth in Exhibit D in dollars and in same day funds. --------- If the Agent so notifies any Bank prior to 12:00 Noon (St. Louis time) on any Business Day, such Bank shall make available to the Agent such Bank's proportionate ratable share of the amount of such payment on such Business Day in same day funds. If and to the extent any such Bank shall not make such amount available to the Agent on a timely basis, such Bank agrees to pay to the Agent, forthwith on demand such amount (together with interest thereon for each day from such date until the date such amount is paid to the Agent at the Federal Funds Rate). The failure of any Bank to make available to the Agent its ratable share of any payment under any Letter of Credit shall not relieve any other Bank of its obligations hereunder; provided, however, that no Bank shall be responsible for the failure of any - -------- ------- other Bank to make available to the Agent such other Bank's ratable share of any such payment. (4) Whenever the Agent receives any payment, by or on behalf of the Borrower, of or in connection with a reimbursement obligation for which the Agent received payments from the Banks pursuant to clause (3) above, the Agent shall pay to each Bank which paid its ratable share thereof, in dollars and in same day funds, an amount equal to such Bank's ratable share. If and to the extent the Agent shall not make such amount available to the Bank on a timely basis, the Agent agrees to pay to such Bank forthwith on demand, such amount together with interest thereon (for each day from such date until the date such amount is paid to such Bank, at the Federal Funds Rate). (5) The obligations of the Banks to make payments to the Agent with respect to Letters of Credit shall be irrevocable and not subject to any qualification or exception whatsoever and shall be made in accordance with the terms and conditions of this Agreement under all circumstances, including, without limitation, any of the following circumstances: (a) any lack of validity or enforceability of this Agreement or any of the other Loan Documents; (b) the existence of any claim, setoff, defense or other right which the Borrower may have at any time against a beneficiary named in a Letter of Credit, any transferee of any Letter of Credit (or any Person for whom any such transferee may be acting), any Bank, or any other Person, whether in connection with this Agreement, any Letter of Credit, the transactions contemplated herein or any unrelated transactions (including any underlying transaction between the Borrower and the beneficiary named in any such Letter of Credit); (c) any draft, certificate or any other document presented under the Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (d) the surrender or impairment of any security for the performance or observance of any of the terms of any of the Loan Documents; or (e) the occurrence of any Default or Event of Default. 18 26 Section III.16. Agreement to Repay Letter of Credit Drawings. -------------------------------------------- (1) The Agent shall notify the Borrower of any payment made by the Agent under any Letter of Credit issued by it. The Borrower hereby agrees to reimburse the Agent, by making payment in immediately available funds to the Agent, for any payment made by the Agent under any Letter of Credit issued by it (each such amount so paid until reimbursed, an "Unpaid ------ Drawing") immediately after, and in any event on the date of, such payment, - ------- with interest on the amount so paid by the Agent, to the extent not reimbursed prior to 12:00 Noon (St. Louis time) on the date of such payment, from and including the date paid to but excluding the date reimbursement is made as provided above, at a rate per annum which shall be the Corporate Base Rate in effect from time to time (4.0% in excess of the Corporate Base Rate in effect from time to time if not reimbursed by 12:00 Noon (St. Louis time) on the fifth (5th) Business Day following any such payment), such interest to be payable on demand. The failure by the Borrower to pay an Unpaid Drawing on or prior to the fifth (5th) Business Day following the date on which notice of such Drawing was provided to the Borrower by the Agent shall constitute an Event of Default. (2) Borrower hereby indemnifies and holds the Agent and the Banks harmless from and against any and all claims, damages, losses, liabilities, costs or expenses whatsoever, which the Agent or any Bank may incur (or which may be claimed against the Agent or any Bank by any Person or entity whatsoever) by reason of or in connection with the execution and delivery or transfer of or payment or failure to pay under any Letter of Credit exclusive of the gross misconduct or wilful failure of the Agent or any Bank (except when prohibited by law) to pay under any Letter of Credit after presentation by the beneficiary thereof of a request complying with the terms and conditions of the relevant Letter of Credit. Borrower assumes all risks of the acts or omissions of any beneficiary of any Letter of Credit and neither the Agent nor any Bank (nor any officer or director of the Agent or any Bank) shall be liable or responsible for (a) the use which may be made of any Letter of Credit or for any acts or omissions of any beneficiary in connection therewith, (b) the validity, sufficiency or genuineness of documents or of any endorsement thereon presented in connection with any Letter of Credit, even if such documents or endorsements should in fact prove to be in any or all respects invalid, fraudulent or forged, or (c) payment in good faith by the Agent against presentation of documents which do not comply with the terms of the relevant Letter of Credit, including any failure of any documents to bear any reference or adequate reference to the relevant Letter of Credit. In furtherance and not in limitation of the foregoing, the Agent in making payment under a Letter of Credit may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. The Borrower's obligations under this Section 3.16 to reimburse the Agent with respect to drawings under the Letters of Credit (including, in each case, interest thereon) shall be absolute, unconditional and irrevocable and shall be satisfied strictly in accordance with the terms of this Agreement under all circumstances whatsoever, including, without limitation, the following: (a) any lack of validity or enforceability of a Letter of Credit; or (b) any amendment or waiver or any consent to departure from the terms of a Letter of Credit or any other agreement or instrument relating thereto; or (c) the existence of any claim, setoff, defense or right which the Borrower may have at any time against any beneficiary or any transferee of a Letter of Credit (or any persons or entities for whom any such beneficiary or any such transferee may be acting), the Agent or any Bank or any other person or entity, whether in connection with this Agreement or any unrelated transaction; or 19 27 (d) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; or (e) payment by the Agent under a Letter of Credit against presentation of a request which on its face appears to be in accordance with the terms of the same. Section III.17. Notice of Letter of Credit Outstandings. --------------------------------------- Within twenty (20) days of (i) each issuance of a Letter of Credit hereunder, or (ii) each drawing under, termination of, or other change in the amount of, a Letter of Credit outstanding hereunder, the Agent shall notify the Borrower and the Banks, in accordance with Section 11.03 hereof, of the Letter of Credit Outstandings in respect of Letters of Credit issued by it by delivering to the Borrower and the Banks a Letter of Credit usage status report setting forth a list of each Letter of Credit, and the balance of Letter of Credit Outstandings. Section III.18. Deemed Disbursements; Cash Collateralization. -------------------------------------------- (1) Upon the occurrence and during the continuation of an Event of Default, then: (a) automatically in the case of an Event of Default described in Section 9.01(5), and at the election of the Majority in the case of any other Event of Default described in Section 9.01, an amount equal to that portion of the Letter of Credit Outstandings attributable to the then aggregate amount which is undrawn and available under all outstanding Letters of Credit shall, without demand upon or notice to the Borrower, be deemed to have been paid or disbursed by the Agent (notwithstanding that such amount may not in fact have been so paid or disbursed); and (b) upon notification by the Agent to the Borrower of its obligations under this Section 3.18, the Borrower shall be immediately obligated to reimburse the Agent for the amount deemed to have been so paid or disbursed by the Agent. Any amounts so payable by the Borrower pursuant to this Section 3.18(1) shall be deposited in cash with the Agent and held as collateral security for the obligations of Borrower in connection with any Letter of Credit. At such time when the Event of Default shall have been cured or waived, the Agent shall return to the Borrower all amounts then on deposit with the Agent pursuant to this Section 3.18(1) net of any amounts applied to the payment of any Drawings. (2) If on the Revolving Credit Termination Date any Letter of Credit shall be outstanding, then the Borrower shall, at the Borrower's election, either (i) immediately deposit cash with the Agent in an amount equal to the L/C Coverage Requirement, which cash shall be held by the Agent as collateral security for the obligations of Borrower in connection with any Letter of Credit, or (ii) cause a letter of credit to be issued in favor of the Agent as beneficiary in an amount equal to the L/C Coverage Requirement for each such Letter of Credit, in such form and substance and issued by such bank as may be acceptable to the Agent in its sole discretion. Section III.19. Failure of Any Bank to Make Revolving Loans or --------------------------------------------- Participate in Letters of Credit. Should any Bank default in (i) making a - -------------------------------- Revolving Loan, or (ii) participating in a Letter of Credit required to be made or participated in by the terms of this Agreement, the other Banks shall not be released from their several obligations to make Revolving Loans and/or participate in Letters of Credit as agreed hereunder, and, in the event such defaulting Bank is the Agent, the other Banks shall forthwith appoint one of themselves to act as Agent. However, such 20 28 default shall not obligate any of the Banks to increase their Revolving Loan Commitment hereunder. As liquidated damages for such default, Borrower shall be released from all liability to pay such defaulting Bank any accrued or future fees under Sections 3.05, 3.11 and 3.20 and this Agreement as to such defaulting Bank shall thereupon be terminated until such default is cured, except only to the extent and for the protection of Revolving Loans and participation in Letters of Credit theretofore made or incurred by such defaulting Bank which remain outstanding. Section III.20. Letter of Credit Fees. --------------------- (1) The Borrower agrees to pay to the Agent in respect of each Letter of Credit issued for the account of the Borrower (including, without limitation, the Letters of Credit described on Schedule 3.13 hereof), a fee ------------- (the "Letter of Credit Fee"), for the period from and including the date of -------------------- issuance of such Letter of Credit to and including the date of termination thereof: (a) in respect of each Letter of Credit issued hereunder, computed at a rate of 1.25% per annum on the Stated Amount of such Letter of Credit; and (b) in respect of the Letters of Credit described on Schedule 3.13 hereof and any extension, renewal or reissuance thereof, computed at a rate of 1.50% per annum on the Stated Amount of such Letters of Credit. Letter of Credit Fees shall be due and payable quarterly in advance on the date of issuance of such Letter of Credit and on the last day of each September, December, March and June thereafter until the date of termination thereof (each, other than the date of issuance, a "Letter of Credit Fee Payment ---------------------------- Date"), on the basis of the then Stated Amount of such Letter of Credit and - ---- on the date of termination thereof. The Letter of Credit Fee payable on the date of issuance of a Letter of Credit shall be in an amount equal to the Letter of Credit Fee applicable to such Letter of Credit on the basis of the then Stated Amount for the period from the date of issuance of such Letter of Credit to the next occurring Letter of Credit Fee Payment Date. In the event subsequent occurrences reduce the amount or duration of the Banks' liability under a Letter of Credit below the amount or duration used in making the above calculations, the Agent and each Bank will credit to Borrower, on the next to occur of a Letter of Credit Fee Payment Date or the Revolving Credit Termination Date, the appropriate portion of the Letter of Credit Fee received by such party if the amount refundable by such Bank or the Agent exceeds $100. With respect to Letter of Credit Fees paid to the Agent, a portion of such fees in an amount equal to 1.0% per annum (1.25% per annum in respect of Letters of Credit described on Schedule 3.13 hereof and any extension, renewal or reissuance thereof) on the Stated Amount of such Letter of Credit, and any interest paid by the Borrower to the Agent pursuant to Section 3.16(1) hereof, shall be deemed to be paid by the Borrower to the Agent for the account of the Banks, to be distributed by the Agent to the Banks pro rata on the basis of each Bank's Revolving Loan Commitment as set forth in Exhibit D. The remaining balance of such Letter --------- of Credit Fees shall be retained by the Agent. The Letter of Credit Fees shall be computed on the basis of a year deemed to consist of 360 days and paid for the actual number of days elapsed. (2) The Borrower hereby agrees to pay on demand to the Agent an issuance fee with respect to each Letter of Credit in the amount of Seventy-Five Dollars ($75). The Borrower further agrees to pay on demand to the Agent a negotiation fee with respect to each drawing or request for a drawing under a Letter of Credit in the amount of One Hundred Dollars ($100). Any payments made to the Agent pursuant to this Section 3.20(2) shall be retained by the Agent. All fees payable by the Borrower under this Section 3.20 shall be paid by the Borrower to the Agent within twenty (20) days from the date of the Agent's invoice therefor. Section III.21. Banks Not Required to Extend Credit. No Bank ----------------------------------- shall be required to make any Revolving Loan or issue or participate in any Letter of Credit if, after giving effect thereto, the then aggregate outstanding principal amount of all Revolving Loans plus the then 21 29 aggregate amount of all Letter of Credit Outstandings relative to all Banks would exceed $40,000,000, as such amount may be reduced from time to time pursuant to Section 3.03, or such Bank would exceed its Revolving Loan Commitment (after giving effect to all Revolving Loans, whether or not funded by any particular Bank, as if each Bank had funded its respective Revolving Loans in accordance with the terms of this Agreement). ARTICLE IV. CONDITIONS PRECEDENT -------------------- Section IV.01. Conditions Precedent to the Term Loans and ------------------------------------------ Initial Revolving Loans. The obligation of each Bank to make its Term Loan - ----------------------- and initial Revolving Loan to the Borrower and the obligation of the Agent to issue the initial Letters of Credit are subject to the conditions precedent that the Agent, on behalf of the Banks, shall have received, on or before the date hereof, each of the following: (1) Notes. The Term Notes and Revolving Notes duly executed ----- by the Borrower; (2) Pledge Agreement. The Pledge Agreement, duly executed by ---------------- the Borrower, together with (a) acknowledgment copies of the financing statements (Form UCC-1) duly filed under the Uniform Commercial Code of all jurisdictions necessary or, in the opinion of the Agent, desirable to perfect the security interest created by the Pledge Agreement, and (b) stock powers or powers of attorney which are necessary or appropriate for the security interest of the Agent in the Collateral; (3) Subsidiary Pledge Agreements. Each of the Subsidiary ---------------------------- Pledge Agreements, duly executed by CCB Bancorp, Inc. and River Valley Holdings, Inc., together with (a) acknowledgment copies of the financing statements (Form UCC-1) duly filed under the Uniform Commercial Code of all jurisdictions necessary or, in the opinion of the Agent, desirable to perfect the security interest created by each of the Subsidiary Pledge Agreements, and (b) stock powers or powers of attorney which are necessary or appropriate for the security interest of the Agent in the Collateral; (4) Evidence of all Corporate Action by the Borrower and ---------------------------------------------------- Subsidiaries. Certified (as of the date of this Agreement) copies of all - ------------ corporate action taken by the Borrower and the Subsidiaries which are parties to the Subsidiary Pledge Agreements, including resolutions of the Board of Directors of Borrower and the Subsidiaries which are parties to the Subsidiary Pledge Agreements, authorizing the execution, delivery, and performance of all Loan Documents to which Borrower and/or such Subsidiaries is a party and each other document to be delivered by Borrower and/or such Subsidiaries pursuant to this Agreement; (5) Incumbency Certificates of the Borrower. A certificate --------------------------------------- dated as of the date of this Agreement of the Secretary of Borrower certifying the names and true signatures of the officers of the Borrower authorized to sign the Loan Documents and each other document to be delivered by the Borrower under this Agreement; (6) Opinion of Counsel for the Borrower. A favorable opinion ----------------------------------- of counsel for the Borrower, in substantially the form of Exhibit K, and as --------- to such other matters as the Agent may reasonably request; 22 30 (7) Form U-1. Federal Reserve Form U-1 Purpose Statement, -------- executed by Borrower; (8) Share Certificates. Delivery to Agent of the original ------------------ stock certificates for all of the issued and outstanding shares of stock of each Pledged Subsidiary (exclusive of directors' qualifying shares), together with stock powers; (9) Corporate Existence. Certificates and certified copies of ------------------- charters and articles of incorporation demonstrating the due organization and current good standing of Borrower and each Pledged Subsidiary and certified copies of the Bylaws of Borrower and each Pledged Subsidiary; (10) Watch List. The current Watch List; ---------- (11) Additional Documentation. Such other approvals, opinions ------------------------ or documents as the Agent may reasonably request; and (12) Termination of Existing Secured Credit Agreement. The ------------------------------------------------ existing Secured Credit Agreement dated as of July 14, 1995 among the Borrower, the Agent and the banks named as parties thereto shall, concurrent with the funding of the Term Loans, be refinanced in its entirety and all funding costs (including any additional losses, costs or expenses incurred by such banks as a result of such refinancing occurring on other than the last day of an interest period) payable by Borrower under such Agreement shall have been paid in full. Section IV.02. Conditions Precedent to All Revolving Loans. ------------------------------------------- The obligation of each Bank to make each Revolving Loan (including the initial Revolving Loans) shall be subject to the further conditions precedent that on the date of each such Revolving Loan: (1) The Agent shall have received the Notice of Borrowing which shall specify whether the requested Revolving Loan shall accrue at the Eurodollar Rate or Corporate Base Rate; (2) No Default or Event of Default has occurred and is continuing, or would result from such Revolving Loan. (3) The following statements shall be true and the Agent on behalf of the Banks shall have received a Certificate in substantially the form of Exhibit H attached, signed by at least two of the chief executive --------- officer, the chief financial officer, the president, the chief accounting officer and the chief credit officer of Borrower and dated the date of the Notice of Borrowing requesting such Revolving Loan, containing the confirmations of compliance with certain of the financial covenants as herein provided, and stating that: (a) The representations and warranties contained in Article V of this Agreement are correct on and as of such date; (b) No Default or Event of Default has occurred and is continuing, or would result from such Revolving Loan; (c) Attached is an accurate listing of all of the Affiliates of Borrower; and (d) The use of the proceeds of the requested Revolving Loan will be as indicated in the Notice of Borrowing. 23 31 (4) The Agent shall have received such other approvals, information or documents as the Agent may reasonably request, in form and substance satisfactory to the Agent. ARTICLE V. REPRESENTATIONS AND WARRANTIES ------------------------------ The Borrower represents and warrants to the Banks that: Section V.01. Incorporation, Good Standing, and Due ------------------------------------- Qualification. Borrower is a corporation duly incorporated, validly - ------------- existing and in good standing under the laws of the State of Missouri and is in good standing in all states and jurisdictions wherein it owns property or does business requiring such qualification as a foreign corporation. Borrower is a "bank holding company" as that term is defined in the federal Bank Holding Company Act of 1956, as amended, 12 U.S.C. ' 1841 et seq., and ------- as such, Borrower has received all necessary approvals from and has filed all necessary reports with the Board of Governors of the Federal Reserve System. The list of Affiliates of Borrower as shown on Exhibit M attached --------- is as of the date hereof true and accurate. Each Subsidiary of the Borrower is a bank, savings bank, bank holding company or Missouri corporation duly organized and in good standing under the laws of its respective jurisdiction of organization. Section V.02. Corporate Power and Authority. The execution, ----------------------------- delivery and performance by the Borrower of the Loan Documents as provided for herein are within the corporate powers of Borrower, have been duly authorized by all necessary corporate action and require no action by or in respect to, or filing with any governmental body, agency or official. The execution, delivery and performance by Borrower of the Loan Documents do not conflict with, or result in a material breach of the terms, conditions or provisions of or constitute a default under or result in any violation of, and Borrower is not now in default under or in violation of the terms of its Articles of Incorporation or Bylaws or any rule, regulation, order, writ, judgment or decree of any court or government agency or instrumentality, or any agreement or instrument to which Borrower or any of its Subsidiaries is a party or by which it or they are bound or to which it or they are subject. To the extent that First Commercial Bancorp, Inc. or First Commercial Bank is not in compliance with certain financial covenants under a memorandum of understanding, order or other matter applicable to either or both of such Subsidiaries, such default has been disclosed to the Agent and the applicable regulatory agency and does not materially adversely affect the business or operations of either or both of such Subsidiaries on an individual basis or of the Borrower and the Subsidiaries on a consolidated basis. Section V.03. Legally Enforceable Agreement. This Agreement ----------------------------- has been duly executed and delivered and constitutes a legal, valid and binding agreement of the Borrower enforceable in accordance with its terms, and the other Loan Documents, when executed and delivered in accordance with this Agreement, will constitute a legal, valid and binding obligation of the Borrower, enforceable in accordance with their terms. The Subsidiary Pledge Agreements and the other Loan Documents to which the any Subsidiary is a party, when executed and delivered in accordance with this Agreement, will constitute legal, valid and binding obligations of the Subsidiary, enforceable in accordance with their terms, except as such enforceability may be limited by applicable bankruptcy, insolvency or other similar laws affecting creditors' rights generally. Section V.04. Financial Statements; Financial Condition. ----------------------------------------- The financial information furnished by Borrower representing the financial condition of Borrower or any Subsidiary, such information being identified in Exhibit N attached, is true and correct as of the --------- 24 32 date furnished and there has been no material adverse change in the financial condition, operations or business of any of them since the date of such financial information. Section V.05. Other Agreements. Except for those matters ---------------- disclosed on Schedule 5.05 attached, Borrower is not a party to any ------------- indenture, loan, or credit agreement, or to any lease or other agreement or instrument or subject to any charter or corporate restriction which could have a material adverse effect on its business, properties, assets, operations, or condition, financial or otherwise, or on its ability to carry out its obligations under the Loan Documents. Borrower and all Subsidiaries are not in default in any respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument material to their respective business to which each is a party. Section V.06. Litigation. Except for those matters ---------- disclosed on Schedule 5.06 attached, there is no pending or, to the best of ------------- Borrower's knowledge, threatened action or proceeding against or affecting Borrower or any Subsidiary before any court, governmental agency, or arbitrator, which may, in any one case or in the aggregate, materially affect the financial condition, operations, properties, or business of Borrower or any Subsidiary, or the ability of Borrower to perform its obligations under this Agreement or the Loan Documents. Section V.07. Ownership of Subsidiaries. The ownership of ------------------------- each Subsidiary is as shown on Exhibit O attached. Upon the extension of --------- the Term Loan and the initial Revolving Loans, all shares of common stock of each Subsidiary owned by Borrower will be free and clear of all liens, claims and encumbrances, except as to Pledged Subsidiaries the security interests under the Pledge Agreement and the Subsidiary Pledge Agreements as provided for herein, and except for the pledge of the First Commercial Bank common stock to Borrower to secure convertible debentures issued by First Commercial Bancorp, Inc. in an amount not exceed $6,500,000. Section V.08. ERISA. Borrower and each Subsidiary are in ----- compliance in all material respects with all applicable provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction has occurred and is continuing with respect to any Plan; except as provided on Schedule 5.08 ------------- attached, no notice of intent to terminate a Plan has been filed nor has any Plan been terminated; no circumstances exist which constitute grounds under Section 4042 of ERISA entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; neither Borrower nor any Subsidiary has completely or partially withdrawn under Sections 4201 or 4204 of ERISA from a Multiemployer Plan; Borrower and each Subsidiary have met minimum funding requirements under ERISA with respect to their respective Plans and the present fair market value of all Plan assets exceeds the present value of all vested benefits under each Plan, as determined on the most recent valuation date of the Plan and in accordance with the provisions of ERISA and the regulations thereunder for calculating potential liability to the PBGC or the Plan under Title IV of ERISA; Borrower and all Subsidiaries have incurred no liability to the PBGC under ERISA. Section V.09. Taxes. Borrower and each Subsidiary have ----- filed (or received extensions of the time to file) and will in the ordinary course of business file all tax returns (federal, state, and local) required to be filed and have paid and will pay all taxes, assessments, and governmental charges and levies shown thereon to be due, including interest and penalties, provided, however, that nothing herein will prevent the -------- ------- contest in good faith of any assessment or imposition of any tax as long as an adverse determination will have no material adverse impact upon Borrower or the Pledged Subsidiaries. 25 33 ARTICLE VI. AFFIRMATIVE COVENANTS --------------------- So long as any portion of the indebtedness evidenced by the Notes shall remain unpaid, or the Banks shall have any Commitment under this Agreement, or any Letter of Credit shall remain outstanding, or any Unpaid Drawings shall remain unreimbursed by the Borrower, Borrower and each Pledged Subsidiary will: Section VI.01. Maintenance of Existence. Preserve and ------------------------ maintain its corporate existence and good standing in the jurisdiction of its incorporation, and qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is required. Section VI.02. Maintenance of Records. Keep adequate records ---------------------- and books of account, in which complete entries will be made in accordance with GAAP consistently applied, reflecting all financial transactions. Section VI.03. Maintenance of Subsidiaries. Maintain and --------------------------- keep each Subsidiary in good standing with the jurisdiction of its organization, except to the extent a Subsidiary dissolves or ceases to exist pursuant to a transaction permitted by the terms of Section 7.02. Section VI.04. Compliance With Laws. Comply in all respects, -------------------- and cause compliance on behalf of each Subsidiary, with all applicable laws, rules, regulations, and orders, except, with respect to First Commercial Bancorp, Inc. and First Commercial Bank, any noncompliance with financial covenants under a memorandum of understanding, order or other matter applicable to either or both of such Subsidiaries (which noncompliance shall be disclosed by the Borrower to the Agent in writing) which shall not cause any material adverse action by the applicable regulatory authority and could not have a material adverse effect upon the business or operations of either or both of such Subsidiaries on an individual basis or of the Borrower and the Subsidiaries on a consolidated basis. Compliance shall include, without limitation, paying before the same become delinquent all taxes, assessments, and governmental charges imposed upon it or upon its property. Section VI.05. Right of Inspection. At any time during ------------------- normal business hours and from time to time, upon at least one (1) Business Day's advance notice, permit the Agent and any Bank or any agent or representative thereof to examine and make copies of and abstracts from the records and books of account of and visit the properties of, Borrower and each Subsidiary, and to discuss the affairs, finances, and accounts of Borrower and each Subsidiary, with any of its or their officers and directors and with the Borrower's independent accountants, provided, -------- however, that with respect to the loans of Borrower or a Pledged Subsidiary, - ------- the Agent and any Bank may review and make copies of summaries of the Watch List prepared on a quarterly basis and loan audit reports; review of specific loan accounts and loan review reports may be requested by the Agent or any Bank, whereupon Borrower and Agent or the Bank shall within ten (10) days agree as to the number of such accounts and reports that are reasonable and appropriate to review, and provided further, that upon and during the ---------------- existence of an Event of Default hereunder, there shall be no restrictions or conditions on the scope of the review, inspection and reproduction rights of Agent and the Banks concerning the loans of Borrower or a Pledged Subsidiary. 26 34 Section VI.06. Reporting Requirements. Furnish to the Agent: ---------------------- (1) Quarterly Financial Statements. As soon as practicable, ------------------------------ or in any event within forty-five (45) days after the end of each fiscal quarter of Borrower (a) parent only and consolidated balance sheets of Borrower and its Subsidiaries as of the end of such fiscal quarter and (b) parent only and consolidated statements of income and earnings retained in the business of Borrower and its Subsidiaries for such fiscal quarter, all of which shall be prepared in accordance with GAAP and certified by the chief financial officer or chief accounting officer of Borrower. (2) Annual Financial Statements. As soon as practicable, or --------------------------- in any event within ninety (90) days after the close of each fiscal year of Borrower (a) parent only and consolidated balance sheets of Borrower and its subsidiaries at year end and (b) parent only and consolidated statements of income and earnings retained in the business of Borrower and its Subsidiaries including consolidated and parent only statements of cash flow for such fiscal year, all of which shall include comparative statements for the preceding year and shall be prepared in accordance with GAAP as interpreted by Borrower's independent certified public accountants and consistently applied, and shall be certified by, and accompanied by an unqualified audit opinion of a firm of certified public accountants acceptable to Agent; provided, however, that the opinion may be limited to -------- ------- the consolidated statements of Borrower. (3) Reports. Within forty-five (45) days after such report is ------- filed and to the extent not prohibited by law, copies of all reports filed by Borrower (on a consolidated and parent only basis), First Commercial Bancorp, Inc. and/or First Banks America, Inc. (on a consolidated and parent only basis) with the Board of Governors of the Federal Reserve System or any Federal Reserve Bank, the Federal Deposit Insurance Corporation ("FDIC"), Securities and Exchange Commission ("SEC"), or other bank or thrift regulatory agency; within forty-five (45) days after the end of each fiscal quarter of Borrower, a list of all such reports. Irrespective of the foregoing procedures for the request for copies of reports, Borrower shall submit to the Agent, within forty-five (45) days from the date of submission to the SEC, copies of the following SEC reports with respect to the Borrower, First Commercial Bancorp, Inc. and/or First Banks America, Inc.: 10-K, 10-Q, and 8-K. Borrower shall also submit (or cause to be submitted) to the Agent, within fifteen (15) days from the date of such agreement, copies of any and all agreements entered into by Borrower or any of Borrower's Subsidiaries with the Board of Governors of the Federal Reserve System, any Federal Reserve Bank, the FDIC, the SEC, or other bank or thrift regulatory agency. (4) Subsidiary Reports. Copies of all Quarterly Reports of ------------------ Condition and Income ("Call Report"), certified as required by law, filed by ----------- each Subsidiary with the FDIC or any other governmental or regulatory agency, within forty-five (45) days from the date any such Call Report is submitted to such agency, and, to the extent permitted by law, copies of all examination reports and supervisory comment letters pertaining to each Subsidiary. (5) Examination; Litigation. Promptly after the commencement ----------------------- thereof, notice of all suits and proceedings before any court or governmental department, commission, board, or agency affecting Borrower or any Subsidiary which, if determined adversely, could have a material adverse effect on the financial condition, properties or operations of Borrower or any Subsidiary; promptly after the receipt thereof, notice of any report or comment letter from any regulatory authority of Borrower or any Subsidiary, or from the independent auditors of Borrower, which requires any action of a material adverse nature by Borrower or any Subsidiary. (6) Compliance Certificate. Within forty-five (45) days after ---------------------- the end of each fiscal quarter of Borrower, a Compliance Certificate signed by at least two of the chief executive 27 35 officer, the chief financial officer, the president, the chief accounting officer and the chief credit officer of the Borrower, substantially in the form of Exhibit H attached hereto. --------- (7) Watch List; Reports. Within forty-five (45) days after ------------------- the end of each fiscal quarter of Borrower, a Watch List, together with a list of examinations or examination reports issued or conducted by regulatory authorities of Borrower or a Pledged Subsidiary during said fiscal quarter. (8) Other Information. Such other information and reports ----------------- regarding the financial condition, operations or regulatory affairs of Borrower or any Subsidiary as Agent or a Bank may from time to time reasonably request. Section VI.07. Operations. Operate and maintain its business ---------- and property, and those of its Subsidiaries, in the ordinary course in a prudent manner consistent with sound banking practices and in such a manner that the performance by Borrower of its obligations hereunder are not jeopardized or impaired. Section VI.08. Additional Collateral. Pursuant to the Pledge --------------------- Agreement and/or the Subsidiary Pledge Agreements, pledge and deliver to Agent shares of stock of (i) a bank, thrift institution, bank holding company or savings holding company hereafter acquired by Borrower or any Pledged Subsidiary (other than as may be acquired by First Banks America, Inc. or First Commercial Bancorp, Inc.) with all or a portion of such shares having been acquired with the proceeds of a Loan (or the consideration for which is supplemented or supported, directly or indirectly, by a Letter of Credit), or (ii) a bank, thrift institution, bank holding company or savings holding company which becomes a Subsidiary (other than as may be acquired by First Banks America, Inc. or First Commercial Bancorp, Inc.). ARTICLE VII. NEGATIVE COVENANTS ------------------ So long as any portion of the indebtedness evidenced by the Notes shall remain unpaid, any Bank shall have any Commitment under this Agreement, or any Letter of Credit shall remain outstanding, or any Unpaid Drawing shall remain unreimbursed by the Borrower, Borrower will not, without the prior written consent of the Agent, which consent shall not be unreasonably withheld: Section VII.01. Liens. Create, incur, assume, or suffer to ----- exist, any Lien, or permit any Subsidiary (other than First Banks America, Inc. and First Commercial Bancorp, Inc.) to create, incur, assume, or suffer to exist, any lien, upon or with respect to any of the Collateral or any capital stock held by any Subsidiary, except in favor of the Agent. Section VII.02. Mergers, Etc. Merge or consolidate with any ------------ Person having Total Assets in excess of $250,000,000 or which is subject to a regulatory action or proceeding or any cease and desist order which relates in any material adverse way to the management, financial condition, or operations of such Person, or permit the merger or consolidation of any Subsidiary with any Person having Total Assets in excess of $250,000,000 or which is subject to a regulatory action or proceeding or any cease and desist order which relates in any material adverse way to the management, financial condition, or operations of such Person, or sell, assign, lease, or otherwise dispose of (whether in one transaction or in a series of transactions) any Subsidiary or all or substantially all of its other assets, or permit the sale, assignment, lease, or other disposition of any Subsidiary, or the sale of all or substantially all of the assets of any Subsidiary (whether now 28 36 owned or hereafter acquired), to any Person; provided, however, that the -------- ------- pledge of the First Commercial Bank common stock to Borrower to secure convertible debentures issued by First Commercial Bancorp, Inc. in an amount not to exceed $6,500,000 is permitted, and provided further, that nothing in ---------------- this Section 7.02 shall prevent mergers or sale of assets as between two entities that are Pledged Subsidiaries (other than River Valley Holdings, Inc.). Notwithstanding the foregoing, River Valley Holdings, Inc. will not, without the prior written consent of the Agent, merge with or into any Person other than the Borrower or sell, assign, lease, or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets to any Person other than the Borrower. Section VII.03. Indebtedness. Incur, create, assume or allow ------------ to exist, nor permit any Subsidiary to incur, create, assume or allow to exist, any indebtedness, whether contingent or absolute, except indebtedness: (i) evidenced by the Notes or the reimbursement obligations with respect to the Letters of Credit; (ii) evidenced by certain unsecured notes issued by Borrower relating to the acquisition of Southside Bancshares, Inc. common stock and in an aggregate principal amount not to exceed $272,000; (iii) evidenced by certain notes to the former shareholders of St. Charles Federal Bancshares, Inc. in an aggregate principal amount not to exceed $1,136,777.28; (iv) evidenced by certain debentures payable to Borrower issued by First Commercial Bancorp, Inc. in an amount not to exceed $6,500,000; (v) relating to certain reimbursement obligations of CCB Bancorp, Inc. with respect to certain loans to CCB Bancorp, Inc. in an amount not to exceed $13,500,000; (vi) relating to certain reimbursement obligations of First Banks America, Inc. with respect to certain loans to First Banks America, Inc. in an amount not to exceed $13,000,000; (vii) arising out of accrued expenses or payables in the ordinary course of business; (viii) of accrued taxes not yet payable; (ix) for any other purpose (other than by or on behalf of River Valley Holdings, Inc.) not to exceed in the aggregate the amount of $2,500,000; Section VII.04. Dividends. Pay or declare any dividends on --------- the common stock of Borrower; pay or declare any dividends upon the preferred stock of Borrower designated as Class A or Class B preferred stock in the financial statements of Borrower if a Default or an Event of Default exists or if, after giving effect thereto, a Default or Event of Default would exist. Section VII.05. Stock Issue; Additional Issue of Stock of ---------------------------------------- Subsidiary. Create any new class or amend the terms of any existing class - ---------- of stock of Borrower, or issue any shares of stock of any class of Borrower, the terms of which have not been approved by Agent for the account of the Banks; issue or permit any Subsidiary to issue any additional shares of stock of any class or any capital notes or other long-term debt instruments, or create any new class of stock or amend the terms of any existing class of stock. Section VII.06. Stock Redemption. Redeem, purchase or retire ---------------- any shares of any existing class of stock of Borrower or any capital notes of Borrower or permit any Subsidiary to redeem, purchase or retire any shares of any existing class of stock of such Subsidiary or any capital notes of such Subsidiary; provided, however, that as long as no Event of -------- ------- Default shall have occurred and be continuing, with respect to Subsidiaries which are not wholly owned by the Borrower, such Subsidiary(ies) may redeem, purchase or retire shares of any existing class of stock of such Subsidiary. Section VII.07. Loans. Loan money or extend credit to, or ----- become a surety or guarantor for, or permit any Pledged Subsidiary to do likewise, the benefit of any Affiliate or any Subsidiary or any executive officer or shareholder of any Affiliate or any Subsidiary; provided, -------- however, that Borrower and the Pledged Subsidiaries (other than River Valley - ------- Holdings, Inc.) may extend credit to executive officers or shareholders of any Affiliate or 29 37 Subsidiary (other than River Valley Holdings, Inc.) if the loan or extension of credit complies in all respects with applicable law and regulations, and provided further, that the following items of current indebtedness are - ---------------- permitted: (i) loans to Subsidiaries (other than River Valley Holdings, Inc.) for the purpose of acquiring and holding OREO properties, (ii) loans for operating purposes to Hermanhoff Winery, Inc., in an aggregate amount not to exceed $500,000 at any one time, (iii) loans for operating purposes to Tidal Insurance, Ltd., in an aggregate amount not to exceed $250,000 at any one time, (iv) the purchase by Borrower of convertible debentures issued by First Commercial Bancorp, Inc. in an amount not to exceed $6,500,000, (v) loans to CCB Bancorp for the purpose of purchasing a $5,000,000 debenture issued by QCB Bancorp and for acquiring La Cumbre Savings Bank, fsb, in an amount not to exceed $13,500,000 at any one time, (vi) loans to First Banks America, Inc. for the purpose of acquiring Sunrise Bancorp in an amount not to exceed $13,000,000 at any one time, and (vii) loans to Firstserv, Inc. (an Affiliate formed for the purpose of providing data processing services and mortgage loan processing services to Pledged Subsidiaries) and to First Securities of America (an Affiliate formed for the purpose of engaging in permitted insurance activities) in an aggregate amount not to exceed $1,000,000 at any one time. Section VII.08. Continuation of Business. Substantially ------------------------ change, nor permit any of its Subsidiaries to change substantially, the nature of the respective businesses in which they are now engaged, nor engage in, nor permit any Subsidiary to engage in, any line of business if, as a result thereof, the business of the Borrower and its Subsidiaries, taken as a whole, would not be predominately the banking or thrift business (and activities deemed closely related to banking and/or the thrift business by applicable regulatory authorities) as currently constituted as of the date hereof. ARTICLE VIII. FINANCIAL COVENANTS ------------------- So long as any portion of the indebtedness evidenced by the Notes shall remain unpaid or any Bank shall have any Commitment under this Agreement, or any Letter of Credit shall remain outstanding, or any Unpaid Drawing shall remain unreimbursed by the Borrower, Borrower and the Pledged Subsidiaries (other than River Valley Holdings, Inc.) will comply with each of the following covenants: Section VIII.01. Tier I Leverage Ratio. Borrower and --------------------- Subsidiaries, on a consolidated basis, shall maintain a minimum Tier I Leverage Ratio at the end of each quarterly accounting period of not less than 5.0% or such greater amount as may be required to be considered "well capitalized" by applicable regulatory authorities from time to time. Section VIII.02. Tier I Leverage Ratio of Subsidiaries. Each ------------------------------------- Subsidiary of Borrower which is a bank holding company (other than First Commercial Bancorp, Inc.), on a consolidated basis, shall maintain a minimum Tier I Leverage Ratio at the end of each quarterly accounting period of not less than 5.0% or such greater amount as may be required to be considered "well capitalized" by applicable regulatory authorities from time to time, and First Commercial Bancorp, Inc., on a consolidated basis, shall maintain a minimum Tier I Leverage Ratio at the end of each quarterly accounting period of not less than 1.5%. Each Subsidiary of Borrower engaged in banking shall maintain a minimum Tier I Leverage Ratio at the end of each quarterly accounting period of not less than 5.0% or such greater amount as may be required to be considered "well capitalized" by applicable regulatory authorities from time to time. Section VIII.03. Tier I Risk Based Capital Ratio. Each ------------------------------- Subsidiary of Borrower which is bank holding company (other than First Commercial Bancorp, Inc.), on a 30 38 consolidated basis, shall maintain a minimum Tier I Risk Based Capital Ratio at the end of each quarterly accounting period of not less than 6.0% or such greater amount as may be required to be considered "well capitalized" by applicable regulatory authorities from time to time, and First Commercial Bancorp, Inc., on a consolidated basis, shall maintain a minimum Tier I Risk Based Capital Ratio at the end of each quarterly accounting period of not less than 2.4%. Each Subsidiary of Borrower engaged in banking shall maintain a minimum Tier I Risk Based Capital Ratio at the end of each quarterly accounting period of not less than 6.0% or such greater amount as may be required to be considered "well capitalized" by applicable regulatory authorities from time to time. Section VIII.04. Total Risk Based Capital Ratio. Each ------------------------------ Subsidiary of Borrower which is a bank holding company (other than First Commercial Bancorp, Inc.), on a consolidated basis, shall maintain a minimum Total Risk Based Capital Ratio at the end of each quarterly accounting period of not less than 10.0% or such greater amount as may be required to be considered "well capitalized" by applicable regulatory authorities from time to time, and First Commercial Bancorp, Inc., on a consolidated basis, shall maintain a minimum Total Risk Based Capital Ratio at the end of each quarterly accounting period of not less than 3.7%. Each Subsidiary of Borrower engaged in banking, other than BancTEXAS, N.A., shall maintain a minimum Total Risk Based Capital Ratio at the end of each quarterly accounting period of not less than 10.0% or such greater amount as may be required to be considered "well capitalized" by applicable regulatory authorities from time to time. BancTEXAS, N.A. shall maintain a minimum Total Risk Based Capital Ratio at the end of each quarterly accounting period of not less than 8.0% or such greater amount as may be required to be considered "adequately capitalized" by applicable regulatory authorities from time to time. Section VIII.05. Loan Loss Reserve. Borrower and Subsidiaries, ----------------- on a consolidated basis, shall maintain a minimum Loan Loss Reserve, expressed as a percentage of Total Loans, for each quarterly accounting period of 1.25% or such greater amount as may be required by regulatory authorities or prudent banking standards from time to time. Section VIII.06. Net Income to Average Total Assets. The ---------------------------------- Borrower and Subsidiaries, on a consolidated basis, shall maintain a ratio, expressed as a percentage, of Net Income less Gain on Sale of Securities and other extraordinary and/or non-recurring items (as determined in accordance with GAAP) to Average Total Assets of not less than 0.65% for the 1996 fiscal year of Borrower, and not less than 0.70% for each fiscal year of Borrower thereafter. Section VIII.07. Non-Performing Assets. Borrower and --------------------- Subsidiaries, on a consolidated basis, shall have Non-performing Assets, in the aggregate, of not more than 25% of Primary Capital. ARTICLE IX. EVENTS OF DEFAULT ----------------- Section IX.01. Events of Default. If any of the following ----------------- events ("Events of Default") shall occur: (1) Borrower shall fail to pay (a) the principal of, or interest on, a Note, or (b) any reimbursement obligation in respect of Letters of Credit, within five (5) calendar days of the applicable due date; 31 39 (2) Borrower shall fail to pay any fees or any other amount payable hereunder when due and such failure shall remain unremedied for ten (10) consecutive calendar days after notice of such failure shall have been given to the Borrower by the Agent; (3) Any representation or warranty made or deemed made by the Borrower or any Subsidiary in this Agreement, the Pledge Agreement, the Subsidiary Pledge Agreements, or which is contained in any certificate, document, opinion, or financial or other statement furnished at any time under or in connection with any Loan Document, shall be reasonably determined by the Agent to have been incorrect in any material respect on or as of the date made or deemed made and such default remains unremedied for thirty (30) consecutive calendar days after notice thereof shall have been given to the Borrower by the Agent; (4) (a) Borrower shall fail to perform or observe any term, covenant, or agreement contained in any Loan Document (other than as contained in Article VIII hereof and other than as contained in a Note) on its part to be performed or observed, and such failure shall remain unremedied for thirty (30) consecutive calendar days after notice thereof shall have been given to the Borrower by the Agent, provided, however, that -------- ------- in the event two or more such notices are required to be given in any consecutive six month period, Agent at its option need not give such notice, and there shall not be any period for the cure of such failure with respect to such second or succeeding failure, or (b) Borrower shall fail to perform or observe any term, covenant, or agreement contained in Article VIII hereof or in a Note; (5) Borrower or any Subsidiary (a) shall generally not, or shall be unable to, or shall admit in writing its inability to pay its debts as such debts become due; or (b) shall make an assignment for the benefits of creditors, petition or apply to any tribunal for the appointment of a custodian, receiver, or trustee for it or a substantial part of its assets; or (c) shall commence any proceedings under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution, or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or (d) shall have any such petition or application filed or any such proceeding commenced against it, in which an order for relief is entered or adjudication or appointment is made and which remains undismissed for a period of thirty (30) calendar days or more; or (e) by any act or omission shall indicate its consent to, approval of, or acquiescence in any such petition, application, or proceeding, or order for relief, or the appointment of a custodian, receiver, or trustee for all or any substantial part of its properties; or (f) shall suffer any such custodianship, receivership or trusteeship to continue undischarged for a period of thirty (30) calendar days or more; (6) One or more judgments, decrees, or orders for the payment of money in excess of One Million Dollars ($1,000,000) in the aggregate shall be rendered against Borrower or any Subsidiary, and such judgments, decrees, or orders shall continue unsatisfied and in effect for a period of thirty (30) consecutive calendar days without being vacated, discharged, satisfied, or stayed or bonded pending appeal; (7) Any of the Pledge Agreement and/or the Subsidiary Pledge Agreements shall at any time after its execution and delivery and for any reason (other than by the action of the Agent) cease (a) to create a valid and perfected Lien in and to the property purported to be subject thereto, of the priority represented therein, or (b) to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by Borrower or any Subsidiary, or Borrower or any Subsidiary, as applicable, shall deny or disclaim further liability or obligation thereunder, or Borrower or any Subsidiary shall fail to perform any of its obligations thereunder, and solely with respect to performance of obligations by the Borrower or any Subsidiary, as applicable, under the Pledge Agreement and/or the Subsidiary Pledge Agreements, such default remains unremedied for thirty (30) consecutive calendar days after notice thereof shall 32 40 have been given to the Borrower by the Agent (the other events described in this Section 9.01(7) shall become Events of Default immediately upon occurrence without notice to the Borrower); (8) Any of the following events occur or exist with respect to Borrower or any Subsidiary: (a) any Prohibited Transaction involving any Plan; (b) any Reportable Event with Respect to any Plan; (c) the filing under Section 4041 of ERISA of a notice of intent to terminate any Plan or the termination of any Plan; (d) any event or circumstance that might constitute grounds entitling the PBGC to institute proceedings under Section 4042 of ERISA for the termination of, or for the appointment of a trustee to administer, any Plan, or the institution by the PBGC of any such proceedings; (e) complete or partial withdrawal under Section 4201 or 4204 of ERISA from a Multiemployer Plan or the reorganization, insolvency or termination of any Multiemployer Plan; and in each case above, such event or condition, together with all other events or conditions, if any, could in the opinion of the Agent subject the Borrower or any Subsidiary to any tax, penalty, or other liability to a Plan, a Multiemployer Plan, the PBGC, or otherwise (or any combination thereof) which in the aggregate exceed or may exceed Two Hundred Fifty Thousand Dollars ($250,000); (9) If James F. Dierberg and/or Mary W. Dierberg (together with any trust or partnership or other entity over which he or she has voting control) cease to own in the aggregate at least 51% of the voting shares of stock of First Banks, Inc.; (10) Except for those matters disclosed on Schedule 9.01(10), ----------------- if any regulatory action or proceeding shall be commenced, or any cease and desist order shall be entered into, between any state or federal regulatory authority and Borrower or any Subsidiary which relates in any material adverse way to the management or operations of Borrower or any Subsidiary; (11) A default or an event of default exists or is declared under the terms of any indebtedness or other material agreements of the Borrower or any Subsidiary which continues beyond any applicable notice and cure period; (12) The Borrower shall fail to have positive Net Income for any two consecutive fiscal quarters; or (13) The Majority (as hereinafter defined) shall have determined in good faith (which determination shall be conclusive) that (a) a material adverse change has occurred in the assets, business, operations, properties or condition, financial or otherwise, of the Borrower, or (b) the Banks' security interest in the Collateral or in any material portion thereof has been adversely affected or impaired, or the value of the Collateral to the Banks relative to the amount of outstanding obligations hereunder has been diminished to a material extent, or (c) the prospect of payment or performance of any obligation or agreement of the Borrower hereunder or under any of the Loan Documents is materially impaired, and the condition giving rise to such determination does not constitute an Event of Default under any of the other subsections of this Section 9.01; then, in any such event Agent shall at the request of the Majority (as hereinafter defined) declare the Banks' obligations to make Revolving Loans or issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate and declare the outstanding Notes, all interest thereon, and all other amounts payable under this Agreement to be forthwith due and payable in full, whereupon the Notes, all such interest, and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest, or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, that in the case of any of the -------- Events of Default specified in subsection (5) above, without any notice to the Borrower or any other act by the Agent or the Banks, the Banks' obligations to make Revolving Loans and issue Letters of 33 41 Credit shall be automatically terminated and the Notes, all interest thereon, and all other amounts payable under this Agreement shall be forthwith due and payable in full, without presentment, demand, protest, or further notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE X. AUTHORITY AND RESPONSIBILITIES OF AGENT --------------------------------------- Section X.01. Grant of Authority. Each of the Banks hereby ------------------ irrevocably appoints and authorizes The Boatmen's National Bank of St. Louis, as the Agent under this Agreement and each other Loan Document, on its behalf, to take such action and exercise such powers under this Agreement and each other Loan Document as are specifically delegated to the Agent by the terms thereof, together with such other powers as are reasonably incidental thereto. The Agent shall have no duty to exercise any right or power or remedy hereunder or to take any affirmative action hereunder unless directed to do so by the Majority (as hereafter defined). For purposes of this Agreement, the term "Majority" shall mean the Banks -------- holding at least sixty-six percent (66%) in dollar amount of the Commitment. Section X.02. Action upon Indemnification Instructions. The ---------------------------------------- Agent shall in all cases be fully justified and protected in acting or continuing, failing or refusing to take any action hereunder or under any other Loan Document upon the written instructions signed by the Majority, and such instructions and any action taken or any failure to act pursuant hereto shall be binding on all of the Banks, all holders of the Notes and their respective successors and assigns. Section X.03. Reports; Responsibility of the Agent; ------------------------------------- Disclaimer. Promptly upon the receipt thereof from the Borrower, Agent - ---------- shall photocopy and forward to each Bank each report, statement and other written information received by Agent pursuant to the terms of Section 6.06 of this Agreement. Neither the Agent nor any of its respective directors, officers, agents, employees, attorneys-in-fact or affiliates shall be liable for any action taken or omitted to be taken under or in connection with this Agreement or any other Loan Document, except for its or their willful misconduct or gross negligence. Without limiting the generality of the foregoing, the Agent: (1) shall not be responsible to any Bank for any statement, representation or warranty made by any Bank other than Agent or any officer thereof under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby; (2) shall not be responsible for the due execution, effectiveness, validity, enforceability or sufficiency of this Agreement, the Notes, the Pledge Agreement, the Subsidiary Pledge Agreements or any other document or instrument furnished pursuant hereto or in connection herewith; (3) shall not be bound to ascertain or inquire as to the performance or observance of any of the terms, provisions or conditions of this Agreement or any other Loan Document on the part of the Borrower or any Subsidiary or as to the business, operation, property, assets or condition (financial or otherwise) of the Borrower or its Subsidiaries; (4) shall be entitled to rely upon any writing, statement, notice or any telegraph, telex, teletype or telecopy message or any telephone conversation believed by it to be genuine and correct and, in the case of any writing, to have been signed or sent by the proper person; 34 42 (5) may consult with counsel and independent accountants and other experts selected by the Agent and shall be fully protected in any action taken or omitted to be taken in accordance with the advice of such counsel, independent accountants or other experts; (6) may employ agents and attorneys-in-fact and shall not be liable for the default, negligence or misconduct of any such selected by the Agent with reasonable care; (7) may treat the payee of a Note as the holder thereof until it receives written notice of the assignment or transfer thereof signed by such payee and in form satisfactory to the Agent. Any request, authority or consent of any person who at such time is the holder of any Note shall be conclusive and binding on any subsequent holder, transferee or assignee of such Note or Note issued in exchange therefor; and (8) shall have no liability or responsibility to Borrower for any failure on the part of any Bank to comply with an obligation on its part to be performed under this Agreement. Section X.04. Correction of Errors. If the Agent shall pay -------------------- any amount to any Bank pursuant hereto in the belief or expectation that a related payment has been or will be received or collected from the Borrower in connection with any Loan and such related payment is not actually received or collected by the Agent then such Bank will promptly, on demand by the Agent, return such amount to the Agent, together with interest thereon at the federal funds rate for overnight deposits. Section X.05. Expenses; Indemnification. To the extent that ------------------------- the Borrower fails to do so, each Bank, and each subsequent holder of a Note by its acceptance thereof, agrees to reimburse the Agent upon demand in proportion to the unpaid principal amount of its Notes, or if no Notes are at the time outstanding in proportion to the Commitments, and to indemnify and hold the Agent and its directors, officers, employees and agents in their respective capacities harmless in such proportion against any and all losses, liabilities, damages, demand, judgment, claim, counterclaim, set-off, cost, disbursement or expenses of any kind whatsoever (including reasonable attorney's fees and expenses) incurred by or asserted against the Agent or its directors, officers, employees and agents under or in connection with any of the foregoing arising out of or in connection with this Agreement, the Notes or any other Loan Documents, the transactions contemplated hereunder, the enforcement, collection or realization of any thereof or any action taken or omitted by the Agent, provided that no Bank shall be liable for any portion of the foregoing incurred by the Agent as a result of its willful misconduct or gross negligence. The agreements in this Section 10.05 shall survive the payment of the Loans, or any other amounts payable hereunder or under the Notes and the termination of the Commitments. Section X.06. Rights as Bank. With respect to its Loans and -------------- the Notes issued to it, the Agent shall have the same rights and powers hereunder as any Bank and may exercise the same as though it were not the Agent, and the term "Bank" or "Banks" shall include the Agent in its ---- ----- individual capacity. The Agent and any of its affiliates may accept deposits from, lend money to, and generally engage in any kind of banking or trust business with, the Borrower and any affiliates as if it were not the Agent and may accept fees and other consideration from the Borrower for services in connection with this Agreement and otherwise without having to account for the same to the Banks. Section X.07. Representation of Each Bank. Each Bank --------------------------- expressly acknowledges that the Agent has not made any representations or warranties to it and that no action taken or hereafter taken by the Agent shall be deemed to constitute a representation or warranty by the Agent to any other Bank. Each Bank represents and warrants to the Agent that it has made and 35 43 will continue to make its own independent investigation of the condition (financial and otherwise) and affairs of the Borrower and the Subsidiaries in connection with this Agreement and the Notes without reliance on the Agent or on any information or documents prepared by the Agent. Except for notices, reports and other documents expressly required to be furnished to the Banks by the Agent hereunder, the Agent shall not have any duty or responsibility to provide any Bank or any of its respective officers, directors, employees, agents, attorneys-in-fact or affiliates any other information or documentation pertaining to Borrower, the Subsidiaries, or their financial affairs. Notwithstanding any provision to the contrary elsewhere in this Agreement, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Agent. Section X.08. Rights to Resign; Appointment of a Successor -------------------------------------------- Agent. The Agent may resign as such at any time upon thirty (30) calendar - ----- days' notice to the Borrower and the Banks. In such event, the Majority shall appoint a successor Agent which shall be an incorporated bank or trust company, provided, however, that if there is no Default or Event of Default -------- ------- at the time of such appointment and provided further the successor Agent is to be a bank other than Harris Trust and Savings Bank, Norwest Bank Minnesota, National Association, American National Bank and Trust Company of Chicago, or The Frost National Bank, the Agent shall send to Borrower a list of at least three (3) banks which are satisfactory to the Majority to serve as the successor Agent, whereupon the Borrower shall have three (3) Business Days in which to select which bank on the list is to be the successor Agent. In the event of the failure of the Borrower to select a bank from the list, then the right of selection granted to the Borrower hereunder shall forever lapse. If no successor shall have been so appointed and accepted such appointment within thirty (30) days after the retiring Agent's giving of notice of resignation or the Majority's removal of the retiring Agent, then the retiring Agent may, on behalf of the Banks, appoint a successor, which shall be a Bank, or, if no such Bank accepts such appointment, which shall be a bank or trust company with an office (or an affiliate with an office) in St. Louis, Missouri, having a combined capital and surplus of not less than One Hundred Million Dollars ($100,000,000). Upon the acceptance of any appointment as Agent hereunder by a successor Agent, such successor shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation or removal hereunder as Agent, the provisions of this Article X shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Agent. Section X.09. Notice of Default. The Agent shall not be ----------------- deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the Agent has received notice from a Bank or the Borrower referring to this Agreement, describing such Default or Event of Default and, in the case of any Default or Event of Default other than those described in Section 9.01 of this Agreement, stating that such notice is a "notice of default". The Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Majority, provided that unless and until the Agent shall have received such directions, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Banks. Section X.10. Agent Compensation. For its services as Agent ------------------ hereunder, Borrower shall pay to Agent on the date of this Agreement and on each anniversary date thereof, certain compensation as heretofore agreed between Agent and Borrower. 36 44 ARTICLE XI. MISCELLANEOUS ------------- Section XI.01. Capital Adequacy Reimbursement. If after the ------------------------------ date hereof, the Agent shall be advised that or shall determine that with respect to any of the Banks the adoption or the taking effect of any applicable law, rule or regulation regarding capital adequacy, or any change therein, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency or compliance by the Banks with any request or directive regarding capital adequacy (whether or nor having the force of law) of any such authority, central bank or comparable authority, has or would have the effect of reducing the rate of return on or increasing the cost of maintaining all of the Banks' capital as a direct consequence of their obligations hereunder (taking into consideration the Banks' policies with respect to capital adequacy) then from time to time, within fifteen (15) calendar days after demand by Agent, Borrower shall pay to Agent such additional amount or amounts as will compensate the Banks for such reduction or increase. A certificate of the Agent claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive and binding in the absence of manifest error. Section XI.02. Amendments, Etc. Except as expressly provided --------------- in Article VII hereof, no amendment, modification, termination, or waiver of any provision of any Loan Document, nor consent to any departure by the Borrower from any Loan Document, shall in any event be effective unless the same shall be in writing and signed by the Agent and a Majority of the Banks, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, -------- however, that no such amendment, modification, termination or waiver of any - ------- provision of any Loan Document shall: (a) postpone the stated maturity of principal of, or interest on, any of the Loans or the reimbursement obligations with respect to the Letters of Credit, or reduce the principal amount of, the rate of interest on, or the fees in connection with this Agreement; (b) increase the maximum amount of the Revolving Loan Commitment or the Revolving Loan Commitment of any Bank; (c) change the percentages required for action by the Banks under this Section 11.02 or by the Majority under this Agreement; or (d) release or subordinate any Liens in favor of the Agent on any of the Collateral, except as otherwise expressly provided herein. The consent of all of the Banks is required to effect any amendment, modification or waiver of the provisions of this Agreement and of each Loan Document which provisions are of a type described in clauses (a), (b), (c) or (d) of this Section 11.02. The consent of the Borrower will not be required to effect any amendment, modification or waiver of the provisions of Article X of this Agreement. Section XI.03. Notices, Etc. All notices and other ------------ communications provided for under this Agreement and under the other Loan Documents shall be in writing (including facsimile communication) and mailed, sent by facsimile machine or delivered, to the parties at the addresses set forth on Exhibit P attached or, as to each party, at such --------- other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section 11.03. All such notices and communications shall, when mailed, be effective when deposited in the mails respectively addressed as aforesaid, except that notices to the Agent and the Banks pursuant to the provisions of Article II and Article III shall not be effective until received by the Agent and such Banks. Section XI.04. No Waiver; Remedies. No failure on the part ------------------- of the Agent or any Bank to exercise, and no delay in exercising, any right, power, or remedy under any Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right under any Loan Document preclude any other or further exercise thereof or the exercise of any 37 45 other right. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law. Section XI.05. Successors and Assigns. This Agreement shall ---------------------- be binding upon and inure to the benefit of the Borrower and the Banks and their respective successors and assigns, except that Borrower may not assign or transfer any of its rights under any Loan Document to which Borrower is a party without the prior written consent of the Banks, and a Bank may not sell, assign or participate all or any portion of its Notes (other than a sale, assignment, or participation to an affiliate bank) without the prior written consents of Borrower and Agent. Section XI.06. Costs and Expenses. ------------------ (1) The Borrower agrees to pay to Agent and the Banks on demand, all costs and expenses, if any, incurred by Agent and the Banks in connection with any modification of this Agreement and with the modification or enforcement of any of the Loan Documents, including, without limitation, the reasonable fees and expenses of counsel for the Agent (with respect to modifications and enforcement) and the Banks (with respect to enforcement only) with respect thereto and with respect to advising the Agent and the Banks as to its respective rights and responsibilities under any of the Loan Documents. (2) If any payment or prepayment of principal with respect to any Loans accruing at the Eurodollar Rate Loan is made by the Borrower other than on the last day of the Interest Period for such Loans, and such payment is permitted pursuant to Sections 2.06, 2.10 or 3.10, or is made as a result of an acceleration of the maturity of the Notes pursuant to Section 9.01 or for any other reason, the Borrower shall, upon demand by the Agent on behalf of the Banks, pay the Agent for the account of the Banks any amounts required to compensate the Banks for any additional losses, costs or expenses which they may reasonably incur as a result of such payment, including, without limitation, any loss (including loss of anticipated profits), costs or expenses incurred by reason of the liquidation or reemployment of deposits or other funds acquired by the Banks to fund or maintain such Loan. Section XI.07. Right of Setoff. Upon the occurrence and --------------- during the continuance of any Event of Default, each Bank is hereby authorized at any time and from time to time, without notice to the Borrower (any such notice being expressly waived by the Borrower), to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by a Bank to or for the credit or the account of Borrower against any and all of the obligations of the Borrower now or hereafter existing under this Agreement, the Notes or any other Loan Document, irrespective of whether or not the Agent shall have made any demand under this Agreement or the Notes or such other Loan Document and although such obligations may be unmatured. Each Bank agrees promptly to notify the Borrower after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application. The rights under this Section 11.07 are in addition to other rights and remedies (including, without limitation, other rights of setoff) which the Banks may have. Section XI.08. Sharing of Setoffs. Each Bank agrees that if ------------------ it shall, by exercising any right of setoff receive payment of a proportion of the aggregate amount of principal and interest due with respect to any of the Notes held by it (or any other obligations of Borrower hereunder to such Bank) which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any of the Notes held by such other Bank (or any other obligations of Borrower hereunder to such Bank), the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the 38 46 other Banks (or any other obligations of Borrower hereunder to the other Banks) and such other adjustments shall be made, as may be required so that all such payments of principal and interest on the Notes (or other obligations of Borrower hereunder to the Banks) shall be shared by the Banks pro rata, provided that if any such non-pro rata payment is thereafter recovered or otherwise set aside such purchase of participations shall be rescinded (without interest). Section XI.09. Governing Law; Jurisdiction and Venue. This ------------------------------------- Agreement and the other Loan Documents shall be governed by, and construed in accordance with, the laws of the State of Missouri. The Borrower hereby consents to the jurisdiction of the Circuit Court of the County of St. Louis, Missouri, and the United States District Court for the Eastern District of Missouri, as well as to the jurisdiction of all courts from which an appeal may be taken from any such courts, for the purpose of any suit, action or other proceeding arising out of any of its obligations arising hereunder or with respect to the transactions contemplated hereby, and expressly waives any and all objections it may have as to venue in any such courts and agrees that any proceeding initiated in another court which relates to such matters may be, at the option of the Agent, transferred to any of such courts. Section XI.10. Severability of Provisions. Any provision of -------------------------- any Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of such Loan Document or affecting the validity or enforceability of such provision in any other jurisdiction. Section XI.11. Counterparts. This Agreement may be executed ------------ in any number of counterparts and by different parties to this Agreement in separate counterparts, each which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Section XI.12. Headings. Article and Section headings in the -------- Loan Documents are included in such Loan Documents for the convenience of reference only and shall not constitute a part of the applicable Loan Documents for any other purpose. Section XI.13. Oral Agreements. ORAL AGREEMENTS OR --------------- COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER) AND US (CREDITORS) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 39 47 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. FIRST BANKS, INC. By: /s/ --------------------------------------- Name:------------------------------------- Title:------------------------------------ THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, as Agent and as a Bank By: /s/ --------------------------------------- Name:------------------------------------- Title:------------------------------------ HARRIS TRUST AND SAVINGS BANK By: /s/ --------------------------------------- Name:------------------------------------- Title:------------------------------------ AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO By: /s/ --------------------------------------- Name:------------------------------------- Title:------------------------------------ THE FROST NATIONAL BANK By: /s/ --------------------------------------- Name:------------------------------------- Title:------------------------------------ NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION By: /s/ --------------------------------------- Name:------------------------------------- 48 EXHIBIT A --------- TERM LOAN COMMITMENT AMOUNTS ----------------------------
Bank Amount of Commitment ---- -------------------- The Boatmen's National Bank of St. Louis $16,666,668 American National Bank and Trust Company of Chicago $11,111,111 Harris Trust and Savings Bank $8,333,333 Norwest Bank Minnesota, National Association $8,333,333 The Frost National Bank $5,555,555 $50,000,000
49 EXHIBIT B -------- TERM NOTE --------- $------------ St. Louis, Missouri July 18, 1996 FOR VALUE RECEIVED, the undersigned, First Banks, Inc., a Missouri corporation, promises to pay to the order of ----------------- ("Payee") at the offices of the Agent at One Boatmen's Plaza, 800 Market Street, St. Louis, Missouri 63101, the principal sum of --------------- ($------) or such lesser amount as may be outstanding hereunder. The Borrower promises to pay principal and interest from the date hereof in the amounts, at the rates and at the time or times which shall be determined in accordance with the provisions of that certain Secured Credit Agreement of even date herewith, by and between the Borrower, the Payee and other banks (the "Credit Agreement"). The entire unpaid principal balance hereunder and all accrued and unpaid interest hereon shall be due and payable on July 12, 2000. Interest shall be calculated on the basis of the actual number of days elapsed over a year of 360 days. If any payment due on this Note is payable on a day which is not a Business Day (as defined in the Credit Agreement) then such payment will be made on the next Business Day, the amount of such payment, in such case, to include all interest accrued to the date of actual payment. This Note is one of the "Term Notes" referred to in the certain Credit Agreement is secured as provided therein and is entitled to all of the benefits thereof. In accordance with the terms of the Credit Agreement, the Agent as defined thereunder may declare the unpaid balance of the principal and accrued interest to be immediately due and payable upon the occurrence of an Event of Default as defined in the Credit Agreement, whereupon the unpaid principal and accrued interest then owing hereon shall be and become immediately due and payable, and interest shall accrue at a rate per annum equal to four percent (4%) in excess of the then otherwise applicable rate of interest as determined in accordance with Sections 2.03 and 2.04 of the Credit Agreement. The privilege of prepayment of all or a portion of the indebtedness evidenced by this Note is as provided in the Credit Agreement. If this Note shall not be paid at maturity, whether upon the exercise of acceleration or otherwise, and shall be placed in the hands of an attorney for collection or in connection with insolvency or bankruptcy proceedings, the undersigned hereby promises to pay the reasonable fees and expenses of such attorney in addition to the full amount due hereon, whether or not litigation shall be commenced. Demand for payment, protest and notice of dishonor are hereby waived by all who are or shall become parties to this instrument. FIRST BANKS, INC. By:--------------------------------- Name:------------------------------- Title:------------------------------ 50 EXHIBIT C --------- NOTICE OF INTEREST RATE SELECTION TO: The Boatmen's National Bank of St. Louis FROM: First Banks, Inc. DATE: -------------------, 199-- This Notice of Interest Rate Selection is being submitted pursuant to the terms of the Secured Credit Agreement dated as of July 18, 1996 ("Credit Agreement"), as the same may be thereafter amended from time to time, among First Banks, Inc. and the banks named therein (for whom The Boatmen's National Bank of St. Louis is acting as Agent). (1) The Business Day on which the Interest Period shall commence: --------------- (2) The current aggregate outstanding balance of the Term Loan as of the date hereof is: --------------- (3) Borrower requests that the Term Loan (other than the Repayment Tranche, if applicable) accrue interest at the Eurodollar Rate. (4) The Interest Period requested hereunder (or the new Interest Period for an expiring Interest Period) is ---------- months. (One, two, or three month Interest Periods are available). Such Interest Period will expire on ----------, ----. (5) Borrower requests that the Repayment Tranche in the amount of $2,500,000 accrue interest at the Corporate Base Rate. FIRST BANKS, INC. By:----------------------------------------- Name:--------------------------------- Title:-------------------------------- 51 EXHIBIT D --------- REVOLVING LOAN COMMITMENT AMOUNTS ---------------------------------
Bank Amount of Commitment ---- ------------------- The Boatmen's National Bank of St. Louis $13,333,332 American National Bank and Trust Company of Chicago $8,888,889 Harris Trust and Savings Bank $6,666,667 Norwest Bank Minnesota, National Association $6,666,667 The Frost National Bank $4,444,445 $40,000,000
52 EXHIBIT E --------- REVOLVING CREDIT NOTE --------------------- $----------------- St. Louis, Missouri July 18, 1996 FOR VALUE RECEIVED, the undersigned, First Banks, Inc., a Missouri corporation ("Borrower"), promises to pay to the order of - --------------- ("Payee") at the offices of the Agent at One Boatmen's Plaza, 800 Market Street, St. Louis, Missouri 63101, the principal sum of - -------------- Dollars ($-------------) or such lesser amount as may be outstanding hereunder. The Borrower promises to pay interest from the date hereof on the unpaid principal balance outstanding from time to time prior to maturity at the rates and at the time or times which shall be determined in accordance with the provisions of that certain Secured Credit Agreement of even date herewith, by and between the Borrower, the Payee and other banks (the "Credit Agreement"). The entire unpaid principal balance hereunder and all accrued and unpaid interest hereon shall be due and payable on July 11, 1997. Interest shall be calculated on the basis of the actual number of days elapsed over a year of 360 days. If any payment due on this Note is payable on a day which is not a Business Day (as defined in the Credit Agreement), then such payment will be made on the next Business Day, the amount of such payment, in such case, to include all interest accrued to the date of actual payment. This Note is one of the "Revolving Notes" referred to in the Credit Agreement, is secured as provided therein, and is entitled to all of the benefits thereof. In accordance with the terms of the Credit Agreement, the Agent (as defined thereunder) may declare the unpaid balance of the principal and accrued interest to be immediately due and payable upon the occurrence of an Event of Default as defined in the Credit Agreement, whereupon the unpaid principal and accrued interest then owing hereon shall be and become immediately due and payable, and interest shall accrue at a rate per annum equal to four percent (4%) in excess of the then otherwise applicable rate of interest as determined in accordance with Sections 3.04 and 3.05 of the Credit Agreement. If this Note shall not be paid at maturity, whether upon the exercise of acceleration or otherwise, and shall be placed in the hands of an attorney for collection or in connection with insolvency or bankruptcy proceedings, the Borrower hereby promises to pay the reasonable fees and expenses of such attorney in addition to the full amount due hereon, whether or not litigation shall be commenced. Demand for payment, protest and notice of dishonor are hereby waived by all who are or shall become parties to this instrument. FIRST BANKS, INC. By:--------------------------------- Name:------------------------------- Title:------------------------------ 53 EXHIBIT F --------- NOTICE OF BORROWING ------------------- TO: The Boatmen's National Bank of St. Louis, as Agent FROM: First Banks, Inc. DATE:-------------------, 199- This Notice of Borrowing is being submitted pursuant to the terms of the Secured Credit Agreement dated as of July 18, 1996 ("Credit Agreement"), as the same may be thereafter amended from time to time, among First Banks, Inc. and the banks named therein (for whom The Boatmen's National Bank of St. Louis is acting as Agent). (1) The Business Day of the proposed principal advance under the Credit Agreement is: -- (2) The principal advance under the Credit Agreement will be a [Base Rate Loan] [Eurodollar Rate Loan]. (3) The Interest Period for the Eurodollar Rate Loan requested hereunder )or the new Interest Period for an expiring Interest Period) is ---- months. (4) The current aggregate outstanding balance of the Revolving Loans and the current aggregate Letter of Credit Outstandings as of the date hereof is: $-- (5) The principal advance being requested is (must be at least the unused portion of the Revolving Loan Commitment of $40,000,000 or $1,000,000, whichever is less): $-- (6) The use of the proceeds for the Loan requested hereby will be for ---------------------------. (7) Unused portion of the Revolving Loan Commitment upon advance of funds requested by this Notice ($40,000,000 - #4 - #5): $-- FIRST BANKS, INC. By:---------------------------------- Name:-------------------------- Title:------------------------- 54 EXHIBIT G --------- PLEDGE AGREEMENT ---------------- In consideration of and as collateral security for the payment of any and all present and future indebtedness, obligations and liabilities of FIRST BANKS, INC., a Missouri corporation ("Pledgor") under or pursuant to that certain Secured Credit Agreement of even date herewith (together with any extensions, renewals, amendments or modifications thereof, the "Credit Agreement") among Pledgor and The Boatmen's National Bank of St. Louis ("Boatmen's"), Norwest Bank Minnesota, National Association, Harris Trust and Savings Bank, American National Bank and Trust Company of Chicago and The Frost National Bank (collectively the "Banks"), all such indebtedness, obligations and liabilities, whether direct or indirect, liquidated or unliquidated, absolute or contingent, now existing or hereafter arising, individual, joint, or joint and several (collectively, the "Liabilities"), Pledgor hereby pledges to Boatmen's as agent for and for the ratable benefit of the Banks (as agent for the Banks, Boatmen's is referred to hereinafter as "Pledgee") and grants the Pledgee a continuing security interest in the capital stock of certain Subsidiaries of Pledgor, as described on Exhibit A attached hereto and incorporated herein (together --------- with any additional stock described in Section 4 hereof, collectively, the "Stock"), together with all substitutions therefor and dividends (as limited herein), new shares or warrants, liquidating distributions and other rights, and proceeds or distributions of any nature associated therewith, all of which Pledgor hereby represents and warrants that it owns (or, for purposes of Section 4, will own) free of liens or claims of any kind, with fully marketable title thereto, and has (or will have) the right to so pledge. Pledgor agrees that said Stock, together with the proceeds thereof (hereinafter collectively called the "Collateral," such term as used herein including any underlying security for any note or other evidence of a monetary obligation pledged hereunder) shall constitute security for any and all of the Liabilities and may be held, in accordance with the terms and provisions of this Agreement, for the payment thereof for such periods and applied thereto at such times and in such order as the Pledgee from time to time may deem appropriate, whether or not the Liabilities for which the same are held or applied are in existence at the time of delivery of this Agreement or the Collateral and whether or not such Liabilities are contingent, unliquidated or unmatured. Pledgor further agrees that: 1. Pledgor will keep the Collateral free from all other security interests, liens or encumbrances except those security interests, liens or encumbrances now or hereafter granted to the Pledgee. Pledgor will procure, execute, endorse and deliver all documents which the Pledgee may reasonably require to protect, enforce or otherwise effectuate the Pledgee's rights in the Collateral and Pledgor hereby grants to the Pledgee an irrevocable power of attorney, with full power of substitution, to so act in Pledgor's name if Pledgor fails to do so. 2. The Pledgee may collect the Collateral or any part thereof at any time except with respect to dividends, which shall be collected by Pledgee only in accordance with Paragraph 3 hereof. For such purpose the Pledgee may take, in its own name or in the name of Pledgor, any action which Pledgor might take including suit against any obligor on any note or other monetary obligation constituting part of the Collateral and collection of or foreclosure upon any underlying security, and such action may be taken without first foreclosing under this Agreement on the obligations secured by such underlying security. The Pledgee shall have no obligation, however, to pursue or preserve remedies against any party primarily or secondarily liable as an obligor on the Collateral or otherwise to take action which Pledgor might have taken as regards the Collateral or any underlying security therefor. 55 3. Pledgee shall have the continuing right to retain all or any part of the Collateral so long as any Liability remains in existence (or the Banks shall have any Commitment under the Credit Agreement), even though the same may be unliquidated, unmatured or contingent. Upon maturity of any of the Liabilities or the occurrence of an Event of Default under the Credit Agreement or hereunder, the Pledgee may cause any of the Collateral to be transferred to its own name or to the name of its nominee (and this shall be full authority to any transfer agent, registrar or the like to make such transfer). No such action shall be deemed a retention of the Collateral in satisfaction of any Liability unless written notice so stating shall be given to the Pledgor. The Pledgee shall have the sole right to determine whether any call or option to surrender, exchange, redeem, convert or otherwise change or alter the form of the Collateral shall be exercised if the interest of Pledgee is or may be affected thereby. The Pledgee shall be under no obligation to initiate any such action unless requested in writing by the Pledgor. All dividends, new shares or warrants, liquidating distributions and other rights, proceeds and payments or distributions of any nature received by Pledgor in respect of the Collateral will be delivered to the Pledgee in kind and the Pledgee may take such action as is necessary to assure its direct receipt thereof, provided however that, prior to the occurrence of an Event of Default under the Credit Agreement or hereunder, Pledgor shall be permitted to retain permitted ordinary dividends and interest paid in cash and shall retain the right to vote with respect to the Collateral. 4. In the event that Pledgor, after the date hereof, acquires all or any portion of the stock of any bank, bank holding company, thrift institution or savings holding company (i) with the proceeds of a Loan under the Credit Agreement (or the consideration for which is supplemented or supported, directly or indirectly, by a Letter of Credit) or (ii) which is or by virtue of such acquisition becomes a Subsidiary as defined in the Credit Agreement (other than as may be acquired by First Banks America, Inc. or First Commercial Bancorp, Inc.), Pledgor promptly shall (A) grant to Pledgee a security interest in such stock as additional security for the Liabilities, (B) deliver to Pledgee the certificates representing such stock, along with fully-executed stock powers therefor, and (C) take such other action and execute and deliver such other documents to Pledgee as Pledgee reasonably may require in connection therewith. 5. The following severally shall be considered events of default for purposes of this Agreement: (a) if any representation, warranty or statement of fact made by Pledgor hereunder shall prove to be false or misleading in any material respect, and such default remains unremedied for thirty (30) consecutive calendar days after notice thereof shall have been given to Pledgor by the Pledgee, (b) an Event of Default occurs under the Credit Agreement, or (c) seizure of any of the Collateral or sale or encumbrance thereof or the failure to pay any tax thereon when due (except any tax contested in good faith for which reserves for payment satisfactory to Pledgee have been provided by the Pledgor). 6. Upon maturity of any of the Liabilities (by acceleration or otherwise) or the occurrence of an event of default hereunder, the Pledgee may resort to the Collateral at such times and in such order as it elects and may apply the Collateral to the Liabilities in like manner and without regard to whether application is made to an obligation of the owner of the Collateral so applied. If any of the Collateral is owned by someone other than Pledgor, the Pledgee may elect to apply such Collateral in any proportion to obligations of the owner or owners to the Pledgee without regard to the Liabilities. In addition, the Pledgee shall have all rights of a secured party under the Missouri Uniform Commercial Code and shall apply the proceeds of collection, disposition or other realization on the Collateral to reasonable attorneys' fees and legal expenses incurred by the Pledgee in connection therewith and in the collection of any Liabilities and representation of the Pledgee in proceedings of any nature under the Bankruptcy Code, and thereafter as required by law. If notice of intended disposition is required by law, such notice, if mailed, shall be deemed reasonably and properly given if mailed to the address of Pledgor appearing on the records of the Pledgee at least five (5) Business Days (as defined in the Credit Agreement) before the time of such disposition. The Pledgee shall have the right to proceed 56 against the Collateral or not as the Pledgee may deem proper or as directed by the Majority (as defined in the Credit Agreement), and the Pledgee shall have the right to collect dividends, interest and such like profits from the Collateral whether or not it proceeds against the Collateral. If, in the opinion of the Pledgee, any Collateral cannot be disposed of in a commercially reasonable manner without registration under applicable securities laws, Pledgor will take or cause to be taken such action as is necessary to effect proper registration. If Pledgor shall refuse to take such action, the Pledgee without any obligation to do so, may take such action as it deems warranted to attempt to effect compliance with any applicable law. Any cost, fee or expense incurred by the Pledgee in connection with such efforts or in enforcing Pledgor's covenants hereunder will be considered a cost incurred in disposition of the Collateral. 7. The Pledgee's rights hereunder shall continue unimpaired notwithstanding foreclosure or other disposition of any part of the Collateral, the availability of additional Collateral, any release of or substitution for any of the Collateral, any act or omission impairing the Pledgee's lien on the Collateral or the lien of any underlying security constituting part of the Collateral, including failure to perfect the same, any extension (including extension of time for payment), renewal, substitution, alteration, compromise, settlement, surrender, release or other such agreement or action modifying or varying the terms of or otherwise affecting any of the Liabilities or any part of the Collateral, including any act or omission releasing any party primarily or secondarily liable on the Collateral or on any Liability. No failure by Pledgee to exercise or delay in exercising any of its rights hereunder shall constitute a waiver thereof and no single or partial exercise of any right shall preclude the further exercise thereof or the exercise of any other right. All rights of the Pledgee hereunder or under any instrument or other agreement binding on Pledgor are cumulative and not in substitution of any other rights at law or equity with respect to the Collateral or the collection of the Liabilities. All such rights may be exercised from time to time. Pledgor hereby waives notice of any and all actions, forebearances and omissions of any rights contemplated by this paragraph and consents to be bound thereby as effectively as if Pledgor had agreed thereto in advance. Upon the termination of the Credit Agreement and the liquidation and payment of the liabilities in full, this Agreement shall terminate and the Collateral will be returned forthwith to the Pledgor. 8. The Pledgee shall have no obligation to act in accordance with any communication by Pledgor or any other party obligated on the Liabilities or interested in the Collateral, as endorser, guarantor, surety or otherwise, concerning the liquidation of all or any part of the Collateral if it shall be the opinion of the Pledgee in the exercise of its reasonable judgment that the value of the Collateral upon liquidation may be insufficient to discharge the Liabilities in full. The Pledgee shall in no event be bound by or obligated to act upon any such communication unless the same shall be in writing and shall include explicit instructions as to the disposition requested. 9. Any notice required or permitted hereunder shall be deemed given if sent in the manner and at the addresses as provided in the Credit Agreement. 10. To the extent required by law for purposes of providing qualifying shares of stock to members of the board of directors of the bank institutions owned by Pledgor, Pledgee agrees to release such number of qualifying shares from the lien of this Agreement. To effect such release, Pledgee will deliver the certificate for the shares of stock of the subject banking institution to the Pledgor on a trust receipt basis and with the obligation of Pledgor to return the reissued certificate to Pledgee within forty-eight (48) hours of the delivery to Pledgor. At the request of Pledgee, Pledgor agrees to cause such members of the board of directors to pledge such qualifying shares to Pledgee for the benefit of the Banks as additional collateral for the Liabilities. Any such qualifying shares shall, upon issuance, contain an appropriate legend describing the restrictions and covenants set forth in this Agreement. 57 11. This agreement shall be construed in accordance with and governed by Missouri law. 12. Pledgor warrants and represents to Pledgee that the shares of stock of each institution as listed on Exhibit A on the date hereof --------- represent all of the outstanding shares of stock of each respective institution (except for directors' qualifying shares and except with respect to First Banks America, Inc., First Bank FSB and First Commercial Bancorp, Inc.). Pledgor represents and warrants that (i) the shares of stock of First Banks America, Inc. as listed on Exhibit A on the date hereof --------- represent all of the outstanding shares of Class B common stock issued by such institution and such shares have ordinary voting power to elect a majority of the board of directors of First Banks America, Inc., (ii) the shares of stock of First Commercial Bancorp, Inc. as listed on Exhibit A on --------- the date hereof represent approximately 61% of the outstanding shares of stock issued by such institution and such shares have ordinary voting power to elect a majority of the board of directors of First Commercial Bancorp, Inc., and (iii) the shares of stock of First Bank FSB as listed on Exhibit B --------- on the date hereof represent approximately 64% of the outstanding shares of stock issued by such institution and such shares have ordinary voting power to elect a majority of the board of directors of First Bank FSB. Dated at St. Louis, Missouri, as of this 18th day of July, 1996. FIRST BANKS, INC. By:--------------------------------- Name:------------------------------- Title:------------------------------ 58 PLEDGE AGREEMENT EXHIBIT A LIST OF COLLATERAL ------------------ 9,994 shares of the common stock of First Bank (Creve Coeur, Missouri) [n/o First Banks, Inc.] 400,000 shares of the common stock of First Bank (O'Fallon, Illinois) [n/o First Banks, Inc.] 96,254 shares of the common stock of First Bank FSB [n/o First Banks, Inc.] 2,500,000 shares of the Class B Common Stock of First Banks America, Inc. [n/o First Banks, Inc.] 10,000 shares of the common stock of River Valley Holdings, Inc. [n/o First Banks, Inc.] 100 shares of the common stock of St. Charles Federal Savings and Loan Association [n/o First Banks, Inc.] 457 shares of the common stock of CCB Bancorp, Inc. [n/o First Banks, Inc.] 3,100 shares of the Series A Preferred Stock of CCB Bancorp, Inc. [n/o First Banks, Inc.] 1,000 shares of the Series B Preferred Stock of CCB Bancorp, Inc. [n/o First Banks, Inc.] 65,000,000 shares of the common stock of First Commercial Bancorp, Inc. [n/o First Banks, Inc.] 59 EXHIBIT G-1 ----------- SUBSIDIARY PLEDGE AGREEMENT --------------------------- In consideration of and as collateral security for the payment of any and all present and future indebtedness, obligations and liabilities of First Banks, Inc., a Missouri corporation ("Borrower"), whether direct or indirect, liquidated or unliquidated, absolute or contingent, now existing or hereafter arising, under or pursuant to that certain Secured Credit Agreement of even date herewith (together with any extensions, renewals, amendments or modifications thereof, the "Credit Agreement") among Borrower and The Boatmen's National Bank of St. Louis ("Boatmen's"), Norwest Bank Minnesota, National Association, Harris Trust and Savings Bank, American National Bank and Trust Company of Chicago and The Frost National Bank (collectively the "Banks"), all such indebtedness, obligations and liabilities, whether direct or indirect, liquidated or unliquidated, absolute or contingent, now existing or hereafter arising, individual, joint, or joint and several (collectively, the "Liabilities"), and in consideration of the benefit conferred upon Pledgor (as defined below) as a result of Boatmen's willingness to enter into the Credit Agreement, - -------------------------- ("Pledgor"), a subsidiary of Borrower, hereby pledges to Boatmen's as agent for and for the ratable benefit of the Banks (as agent of the Banks, Boatmen's is referred to hereafter as "Pledgee") and grants Pledgee a continuing security interest in the capital stock of a Subsidiary as described on Exhibit A attached hereto and incorporated herein --------- (together with any additional stock described in Section 4 hereof, collectively, the "Stock"), together with all substitutions therefor and dividends, new shares or warrants, liquidating distributions and other rights, and proceeds or distributions of any nature associated therewith, all of which Pledgor hereby represents and warrants that it owns (or, for purposes of Section 4, will own) free of liens or claims of any kind, with fully marketable title thereto, and has (or shall have) the right to so pledge. Pledgor agrees that said Stock, together with the proceeds thereof (hereinafter collectively called the "Collateral," such term as used herein shall include any underlying security for any note or other evidence of a monetary obligation pledged hereunder) shall constitute security for any and all of the Liabilities and may be held, in accordance with the terms and provisions of this Agreement, for the payment thereof for such periods and applied thereto at such times and in such order as the Pledgee from time to time may deem appropriate, whether or not the Liabilities for which the same are held or applied are in existence at the time of delivery of this Agreement or the Collateral and whether or not such Liabilities are contingent, unliquidated or unmatured. Pledgor further agrees that: 1. Pledgor will keep the Collateral free from all other security interests, liens or encumbrances except those security interests, liens or encumbrances now or hereafter granted to the Pledgee. Pledgor will procure, execute, endorse and deliver all documents which the Pledgee may reasonably require to protect, enforce or otherwise effectuate the Pledgee's rights in the Collateral and Pledgor hereby grants to the Pledgee an irrevocable power of attorney, with full power of substitution, to so act in Pledgor's name with respect to the Collateral if Pledgor fails to do so. 2. Except as otherwise expressly provided under Paragraph 3 hereof, the Pledgee may collect and receive distributions relating to the Collateral or any part thereof at any time. For such purpose the Pledgee may take, in its own name or in the name of Pledgor, any action which Pledgor might take. The Pledgee shall have no obligation, however, to pursue or preserve remedies with respect to the Collateral or otherwise to take action which Pledgor might have taken as regards the Collateral. 60 3. Pledgee shall have the continuing right to retain all or any part of the Collateral so long as any Liability remains in existence (or the Banks shall have any Commitment under the Credit Agreement), even though the same may be unliquidated, unmatured or contingent. Upon maturity of any of the Liabilities or the occurrence of an Event of Default under the Credit Agreement or hereunder, the Pledgee may cause any of the Collateral to be transferred to its own name or to the name of its nominee (and this shall be full authority to any transfer agent, registrar or the like to make such transfer). No such action shall be deemed a retention of the Collateral in satisfaction of any Liability unless written notice so stating shall be given to the Pledgor. The Pledgee shall have the sole right to determine whether any call or option to surrender, exchange, redeem, convert or otherwise change or alter the form of the Collateral shall be exercised if the interest of Pledgee is or may be affected thereby. The Pledgee shall be under no obligation to initiate any such action unless requested in writing by the Pledgor. All dividends, new shares or warrants, liquidating distributions and other rights, proceeds and payments or distributions of any nature received by Pledgor in respect of the Collateral will be delivered to the Pledgee in kind and the Pledgee may take such action as is necessary to assure its direct receipt thereof, provided however that, prior to the occurrence of an Event of Default under the Credit Agreement or hereunder, Pledgor shall be permitted to retain permitted ordinary dividends and interest paid in cash and shall retain the right to vote with respect to the Collateral. 4. In the event that Pledgor, after the date hereof, acquires stock of any bank, bank holding company, thrift institution or savings holding company which is or by virtue of such acquisition becomes a Subsidiary as defined in the Credit Agreement, Pledgor promptly shall (i) grant to Pledgee a security interest in such stock as additional security for the Liabilities, (ii) deliver to Pledgee the certificates representing such stock, along with fully-executed stock powers therefor, and (iii) take such other action and execute and deliver such other documents to Pledgee as Pledgee reasonably may require in connection therewith. 5. The following severally shall be considered events of default for purposes of this Agreement: (a) if any representation, warranty or statement of fact made by Pledgor hereunder shall prove to be false or misleading in any material respect, and such default remains unremedied for thirty (30) consecutive calendar days after notice thereof shall have been given to Pledgor by the Pledgee, (b) Pledgor's failure to perform any of its obligations hereunder, and such failure remains unremedied for thirty (30) consecutive calendar days after notice thereof shall have been given to Pledgor by the Pledgee, (c) an Event of Default occurs under the Credit Agreement, or (d) seizure of any of the Collateral or sale or encumbrance thereof or the failure to pay any tax thereon when due (except any tax contested in good faith for which reserves for payment satisfactory to Pledgee have been provided by the Pledgor). 6. Upon maturity of any of the Liabilities (by acceleration or otherwise) or the occurrence of an event of default hereunder, the Pledgee may resort to the Collateral at such times and in such order as it elects and may apply the Collateral to the Liabilities in like manner and without regard to whether application is made to an obligation of the owner of the Collateral so applied. If any of the Collateral is owned by someone other than Pledgor, the Pledgee may elect to apply such Collateral in any proportion to obligations of the owner or owners to the Pledgee without regard to the Liabilities. In addition, the Pledgee shall have all rights of a secured party under the Missouri Uniform Commercial Code and shall apply the proceeds of collection, disposition or other realization on the Collateral to reasonable attorneys' fees and legal expenses incurred by the Pledgee in connection therewith and in the collection of any Liabilities and representation of the Pledgee in proceedings of any nature under the Bankruptcy Code, and thereafter as required by law. If notice of intended disposition is required by law, such notice, if mailed, shall be deemed reasonably and properly given if mailed to the address of Pledgor appearing on the records of the Pledgee at least five (5) Business Days (as defined in the Credit Agreement) before the time of such disposition. The Pledgee shall have the right to proceed against the Collateral or not as the Pledgee may deem proper or as directed by the Majority (as 61 defined in the Credit Agreement), and the Pledgee shall have the right to collect dividends, interest and such like profits from the Collateral whether or not it proceeds against the Collateral. If, in the opinion of the Pledgee, any Collateral cannot be disposed of in a commercially reasonable manner without registration under applicable securities laws, Pledgor will take or cause to be taken such action as is necessary to effect proper registration. If Pledgor shall refuse to take such action, the Pledgee at its election, but without any obligation to do so, may take such action as it deems warranted to attempt to effect compliance with any applicable law. Any cost, fee or expense incurred by the Pledgee in connection with such efforts or in enforcing Pledgor's covenants hereunder will be considered a cost incurred in disposition of the Collateral. 7. The Pledgee's rights hereunder shall continue unimpaired notwithstanding foreclosure or other disposition of any part of the Collateral, the availability of additional Collateral, any release of or substitution for any of the Collateral, any act or omission impairing the Pledgee's lien on the Collateral or the lien of any underlying security constituting part of the Collateral, including failure to perfect the same, any extension (including extension of time for payment), renewal, substitution, alteration, compromise, settlement, surrender, release or other such agreement or action modifying or varying the terms of or otherwise affecting any of the Liabilities or any part of the Collateral, including any act or omission releasing any party primarily or secondarily liable on the Collateral or on any Liability. No failure by Pledgee to exercise or delay in exercising any of its rights hereunder shall constitute a waiver thereof and no single or partial exercise of any right shall preclude the further exercise thereof or the exercise of any other right. All rights of the Pledgee hereunder or under any instrument or other agreement binding on Pledgor are cumulative and not in substitution of any other rights at law or equity with respect to the Collateral or the collection of the Liabilities. All such rights may be exercised from time to time. Pledgor hereby waives notice of any and all actions, forbearances and omissions of any rights contemplated by this paragraph and consents to be bound thereby as effectively as if Pledgor had agreed thereto in advance. Upon the termination of the Credit Agreement and the liquidation and payment of the Liabilities in full, this Agreement shall terminate and the Collateral will be returned forthwith to the Pledgor. 8. The Pledgee shall have no obligation to act in accordance with any communication by Pledgor or any other party obligated on the Liabilities or interested in the Collateral, as endorser, guarantor, surety or otherwise, concerning the liquidation of all or any part of the Collateral if it shall be the opinion of the Pledgee in the exercise of its reasonable judgment that the value of the Collateral upon liquidation may be insufficient to discharge the Liabilities in full. The Pledgee shall in no event be bound by or obligated to act upon any such communication unless the same shall be in writing and shall include explicit instructions as to the disposition requested. 9. Pledgor agrees that it will not (a) sell or otherwise dispose of, or grant any option with respect to, any of the Collateral or (b) create, incur, assume or suffer to exist any Lien upon or with respect to any of the Collateral except in favor of the Pledgee. 10. Any notice required or permitted hereunder shall be deemed given if sent in the manner as provided in the Credit Agreement and (i) if to Pledgee, directed to the address of Boatmen's as provided in the Credit Agreement and (ii) if to Pledgor, directed to the address of Borrower as provided in the Credit Agreement. 11. To the extent required by law for purposes of providing qualifying shares of stock to members of the board of directors of the bank institutions owned by Pledgor, Pledgee agrees to release such number of qualifying shares from the lien of this Agreement. To effect such release, Pledgee will deliver the certificate for the shares of stock of the subject banking institution to the Pledgor on a trust receipt basis and with the obligation of Pledgor to return the reissued certificate to Pledgee within forty-eight (48) hours of the delivery to Pledgor. At the request of 62 Pledgee, Pledgor agrees to cause such members of the board of directors to pledge such qualifying shares to Pledgee for the benefit of the Banks as additional collateral for the Liabilities. Any such qualifying shares shall, upon issuance, contain an appropriate legend describing the restrictions and covenants set forth in this Agreement. 12. Pledgor acknowledges that Pledgee's willingness to enter into the Credit Agreement will directly facilitate Borrower's ability to provide financial support and/or other services for Pledgor's benefit, and that Pledgee would be unwilling to enter into the Credit Agreement but for execution and delivery of this Agreement. 13. This agreement shall be construed in accordance with and governed by Missouri law. 14. Pledgor warrants and represents to Pledgee that the shares of stock of the institution listed on Exhibit A on the date hereof represent all of the outstanding shares of stock of such institution (except for directors' qualifying shares). [The remainder of this page is intentionally left blank.] 63 Dated at St. Louis, Missouri, as of this 18th day of July, 1996. ------------------------------------------ By:--------------------------------------- Name:------------------------------------- Title:------------------------------------ 64 EXHIBIT A TO SUBSIDIARY PLEDGE AGREEMENT ---------------------------------------- LIST OF COLLATERAL 65 EXHIBIT H --------- CERTIFICATE OF COMPLIANCE ------------------------- This Certificate of Compliance is being submitted on this ------ day of ---------------, ------, for the quarter ending on the ------ day of - ---------------, ------, pursuant to the terms of the Secured Credit Agreement dated as of July 18, 1996 ("Credit Agreement"), as the same may be thereafter amended from time to time, among First Banks, Inc. and the banks named therein (for whom The Boatmen's National Bank of St. Louis is acting as Agent). The undersigned officers of First Banks, Inc., and First Banks, Inc. jointly and severally certify to the Banks that as of the date hereof: A. The representations and warranties contained in Article V of the Credit Agreement are correct as of the date hereof; B. No Default or Event of Default has occurred and is continuing, [or would result upon [the making of the Loan] [giving effect to the Letter of Credit] requested by the accompanying [Notice of Borrowing] [Letter of Credit Request]]; C. Attached is an accurate listing of the current Affiliates of First Banks, Inc.; D. The compliance with the covenants contained in Article VIII of the Credit Agreement is supported by the following: 8.01. Tier I Leverage Ratio ----------------------
(1) (2) Minimum Tier I Total Ratio of Ratio Capital Assets (1) to (2) Permitted ------- ------ ---------- --------- First Banks, Inc. (consolidated) - - - 5.0% ----
66 8.02. Tier I Leverage Ratio of Subsidiaries -------------------------------------
(1) (2) Minimum Tier I Total Ratio of Ratio Subsidiary Capital Assets (1) to (2) Permitted - ---------- ------- ------ ---------- --------- First Bank, Creve Coeur, MO - - - 5.0% ---- First Bank (O'Fallon, Illinois) - - - 5.0% ---- First Bank FSB - - - 5.0% ---- First Banks America, Inc. (consolidated) - - - 5.0% ---- BancTEXAS, N.A. - - - 5.0% ---- St. Charles Federal Savings and Loan Association - - - 5.0% ---- CCB Bancorp, Inc. - - - 5.0% ---- First Bank & Trust - - - 5.0% ---- First Commercial Bancorp, Inc. (consolidated) - - - 1.5% ---- First Commercial Bank - - - 5.0% ----
67 8.03. Tier I Risk Based Capital Ratio -------------------------------
(2) Weighted Risk Assets and Off- (1) Balance Ratio of Minimum Tier I Sheet (1) to Ratio Capital Items (2) Permitted ------- ----- --- --------- First Bank, Creve Coeur, MO ------- ------- - 6.0% ---- First Bank (O'Fallon, Illinois) ------- ------- - 6.0% ---- First Bank FSB ------- ------- - 6.0% ---- First Banks America, Inc. (consolidated) ------- ------- - 6.0% ---- BancTEXAS, N.A. ------- ------- - 6.0% ---- St. Charles Federal Savings and Loan Association ------- ------- - 6.0% ---- CCB Bancorp, Inc. ------- ------- - 6.0% ---- First Bank & Trust - - - 6.0% ---- First Commercial Bancorp, Inc. (consolidated) - - - 2.4% ---- First Commercial Bank - - - 6.0% ----
8.04. Total Risk Based Capital Ratio ------------------------------
(2) Weighted Risk Assets and Off- (1) Balance Ratio of Minimum Tier I Sheet (1) to Ratio Capital Items (2) Permitted ------- ----- --- --------- First Bank, Creve Coeur, MO ------- ------- - 10.0% ----- First Bank (O'Fallon, Illinois) ------- ------- - 10.0% ----- First Bank FSB ------- ------- - 10.0% ----- First Banks America, Inc. (consolidated) ------- ------- - 10.0% ----- BancTEXAS, N.A. ------- ------- - 8.0% ----- St. Charles Federal Savings and Loan Association ------- ------- - 10.0% ----- CCB Bancorp, Inc. ------- ------- - 10.0% 68 First Bank & Trust ------- ------- - 10.0% ----- First Commercial Bancorp, Inc. (consolidated) ------- ------- - 3.7% ----- First Commercial Bank ------- ------- - 10.0% -----
8.05 Loan Loss Reserve -----------------
(1) Ratio of Loan (2) (1) to Minimum Loss Total -- Ratio Reserve Loans (2) Permitted ------- ----- --- --------- First Banks, Inc. (consolidated) ------- ------- - 1.25% -----
8.06 Net Income to Average Total Assets ----------------------------------
(1) Net Income less Gain on Sale of Securities and other extra- ordinary (2) Ratio of and/or non- Average (1) to Minimum recurring Total -- Ratio items Assets (2) Permitted ----- ------ --- --------- First Banks, Inc. (consolidated) ------- ------- - 0.65% (1996 Fiscal Year) ----- First Banks, Inc. (consolidated) ------- ------- - 0.70% (1997 Fiscal Year and thereafter) -----
8.07 Non-Performing Assets ---------------------
(1) Ratio of Non- (2) (1) to Minimum Performing Primary -- Ratio Assets Capital (2) Permitted ------ ------- --- --------- First Banks, Inc. (consolidated) ------- ------- - 25% ---
E. [For borrowing and letters of credit issuance only] The use of proceeds of the requested Loan will be as indicated in the accompanying Notice of Borrowing. [or] The purpose of the Letter of Credit will be as described in Section 3.13 of the Credit Agreement. 69 Signed as of the day and year first above written. FIRST BANKS, INC. (at least two signatures required) By:---------------------------------- Chief Executive Officer/ President By:---------------------------------- Chief Financial Officer By:---------------------------------- Vice President - Chief Accounting Officer By:-------------------------------- Chief Credit Officer 70 EXHIBIT I --------- FORM OF LETTER OF CREDIT -------------------- IRREVOCABLE LETTER OF CREDIT NO. ---------- BENEFICIARY: [BENEFICIARY NAME] [BENEFICIARY ADDRESS] [CITY, STATE ZIP] DEAR -------------: WE HEREBY ESTABLISH IN YOUR FAVOR, UPON THE APPLICATION OF AND FOR THE ACCOUNT OF FIRST BANKS, INC., 135 MERAMEC AVENUE, ST. LOUIS, MISSOURI 63105 ("FIRST BANKS"), OUR IRREVOCABLE STANDBY LETTER OF CREDIT NUMBER ------- (THE "LETTER OF CREDIT") IN THE AMOUNT OF $-------------- (THE "AVAILABLE BALANCE"), SUBJECT TO REDUCTION AS HEREINAFTER SET FORTH. FOR INFORMATION ONLY: THIS LETTER OF CREDIT IS ISSUED WITH RESPECT TO THE ISSUANCE TO YOU OF A PROMISSORY NOTE BY FIRST BANKS PURSUANT TO THE AGREEMENT AND PLAN OF REORGANIZATION BY AND AMONG FIRST BANKS, ST. CHARLES FEDERAL BANCSHARES INC. AND ST. CHARLES ACQUISITION COMPANY, DATED AS OF MARCH 28, 1994. THIS LETTER OF CREDIT WILL BE REDUCED WITHOUT AMENDMENT OR FURTHER NOTIFICATION TO THE BENEFICIARY IN ACCORDANCE WITH THE FOLLOWING SCHEDULE: DATE OF REDUCTION AMOUNT OF REDUCTION AVAILABLE BALANCE - ----------------- ------------------- ----------------- FEBRUARY 17, 1997 $0 ------------------- ---- SUBJECT TO THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT, AN AMOUNT NOT TO EXCEED THE AVAILABLE BALANCE HEREUNDER SHALL BE MADE AVAILABLE UPON PRESENTATION TO US OF YOUR SIGHT DRAFT(S) DRAWN ON THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, ST. LOUIS, MISSOURI, IRREVOCABLE LETTER OF CREDIT NO. --------, ACCOMPANIED BY THE FOLLOWING DOCUMENTS: (i) YOUR SIGNED STATEMENT THAT "THIS DRAFT REPRESENTS THE AMOUNT OF A PRINCIPAL AND INTEREST PAYMENT DUE (BY ACCELERATION OR OTHERWISE) ON THE PROMISSORY NOTES DATED NOVEMBER 30, 1994 EXECUTED BY FIRST BANKS, INC. TO THE ORDER OF CERTAIN PERSONS WHO ELECTED TO RECEIVE SUCH NOTES IN CONNECTION WITH THE ACQUISITION OF 71 ST. CHARLES FEDERAL BANCSHARES INC. BY FIRST BANKS, INC. THIS AMOUNT IS UNPAID AFTER THE EXPIRATION OF ALL APPLICABLE CURE PERIODS, ALTHOUGH JUSTLY DUE AND OWING."; AND (ii) THIS ORIGINAL LETTER OF CREDIT AND AMENDMENTS, IF ANY. THE DRAFT(S) DRAWN UNDER THIS LETTER OF CREDIT MUST BE DRAWN AND PRESENTED TO OUR OFFICE AT ONE BOATMEN'S PLAZA, 800 MARKET STREET, ST. LOUIS, MISSOURI 63101, ATTENTION: LETTER OF CREDIT DEPARTMENT (OR SUCH OTHER OFFICE, DEPARTMENT OR ADDRESS DESIGNATED IN WRITING BY US TO YOU AT YOUR ADDRESS SHOWN ABOVE OR AT SUCH OTHER ADDRESS AS YOU SHALL ADVISE US OF IN WRITING). FAILURE TO DRAW FOR A PARTICULAR INSTALLMENT SHALL NOT AFFECT YOUR RIGHT TO DRAW FOR FUTURE INSTALLMENTS. WE HEREBY AGREE THAT ALL DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS OF THIS LETTER OF CREDIT WILL BE DULY HONORED BY US UPON DELIVERY OF THE CERTIFICATE(S) AND DOCUMENTS AS SPECIFIED ABOVE AND IF PRESENTED AT OUR AFORESAID OFFICE ON OR BEFORE THE EXPIRATION DATE (AS DEFINED BELOW). THIS LETTER OF CREDIT IS EFFECTIVE IMMEDIATELY AND EXPIRES ON THE EARLIER OF (I) FEBRUARY 17, 1997, (II) WHEN YOU HAVE DRAWN AND WE HAVE PAID TO YOU THE AVAILABLE BALANCE OF THIS LETTER OF CREDIT, (III) THE DAY ON WHICH THE AVAILABLE BALANCE OF THIS LETTER OF CREDIT IS REDUCED TO $0.00 PURSUANT TO THE TERMS HEREOF, OR (IV) THE DAY ON WHICH THIS LETTER OF CREDIT IS SURRENDERED TO US FOR CANCELLATION. THIS LETTER OF CREDIT IS TRANSFERRABLE ON ONE OR MORE OCCASIONS, SUBJECT TO THE PAYMENT OF OUR USUAL TRANSFER COMMISSION ACCOMPANIED BY YOUR INSTRUCTIONS IN A FORM SATISFACTORY TO US. TRANSFER FORM INSTRUCTION WILL BE FURNISHED UPON REQUEST. THIS LETTER OF CREDIT SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MISSOURI, BUT SUBJECT, HOWEVER, TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION 500, EXCLUSIVE, HOWEVER, OF ARTICLE 41 THEREOF. VERY TRULY YOURS, THE BOATMEN'S NATIONAL BANK OF ST. LOUIS BY:------------------------------------ AUTHORIZED OFFICER 72 EXHIBIT J --------- LETTER OF CREDIT REQUEST No. -------------------- Dated --------, 199-- ---- ---- To: The Boatmen's National Bank of St. Louis, in its capacity as the Agent under the Secured Credit Agreement, dated as of July 18, 1996 (as amended, modified or supplemented from time to time, the "Agreement"), among FIRST BANKS, INC., a Missouri corporation, (the "Borrower"), THE BOATMEN'S NATIONAL BANK OF ST. LOUIS, NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, HARRIS TRUST AND SAVINGS BANK, AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO and THE FROST NATIONAL BANK Dear Sirs: We hereby request that you issue a Letter of Credit on - ------------------- (the "Date of Issuance") in the aggregate stated ---- amount of ---------------. ---- For purposes of this Letter of Credit Request, unless otherwise defined, all capitalized terms used herein which are defined in the Agreement shall have the respective meanings provided therein. The beneficiary of the requested Letter of Credit will be - ---------------, and such Letter of Credit will be in support of -------- ---- ------ and will have a stated termination date of ---------------. - ---- ---- [FN] - -------------------------------------------------- Letter of Credit Request Number. - ---- Date of Letter of Credit Request (at least two Business Days prior to - ---- the Date of Issuance). Date of Issuance. - ---- Aggregate initial stated amount of Letter of Credit. - ---- Insert name and address of beneficiary. - ---- Insert description of supported obligations and name of agreement to - ---- which it relates. Insert last date upon which drafts may be presented. - ---- 73 Copies of all documentation with respect to the supported transaction are attached hereto. FIRST BANKS, INC. By:--------------------------------- Name: Title: 74 EXHIBIT K --------- FORM OF BORROWER'S COUNSEL OPINION ---------------------------------- July 18, 1996 The Boatmen's National Bank Harris Trust and of St. Louis Savings Bank One Boatmen's Plaza 111 W. Monroe St. Louis, Missouri 63101 Chicago, Illinois 60603 Norwest Bank Minnesota, National Association American National Bank and Trust 100 East Wisconsin Avenue Company of Chicago Milwaukee, Wisconsin 63202-4101 33 North LaSalle Street Chicago, Illinois 60690 The Frost National Bank 100 West Houston Street San Antonio, Texas 78205 Re: The Boatmen's National Bank of St. Louis - $90,000,000 Secured Credit Agreement with First Banks, Inc. --------------------------------------- Ladies and Gentlemen: We have acted as counsel for First Banks, Inc., a Missouri corporation, (the "Borrower") and as counsel to First Bank (Creve Coeur, Missouri), a Missouri state banking corporation ("FB-Creve Coeur"), First Bank (O'Fallon, Illinois), an Illinois state banking corporation ("FB-Illinois"), First Bank FSB, a federal savings bank ("FB-FSB"), First Banks America, Inc., a Delaware corporation ("FB-America"), River Valley Holdings, Inc., an Illinois bank holding company ("River Valley"), St. Charles Federal Savings and Loan Association, a federal savings and loan association ("St. Charles"), CCB Bancorp, Inc., a Delaware corporation ("CCB"), First Bank & Trust ("FB&T"), a California state banking corporation, and First Commercial Bancorp, Inc., a Delaware corporation ("FCB") (FB-Creve Coeur, FB-Illinois, FB-FSB, FB-America, River Valley, St. Charles, CCB, FB&T, and FCB are sometimes individually referred to herein as a "Pledged Subsidiary" and sometimes collectively referred to herein as the "Pledged Subsidiaries") in connection with the above-referenced loan (the "Loan"). This opinion is being furnished to you as required by Section 4.01(5) of the Secured Credit Agreement executed on this date by the Borrower and The Boatmen's National Bank of St. Louis ("Boatmen's"), Norwest Bank Minnesota, National Association, Harris Trust and Savings Bank, American National Bank and Trust Company of Chicago, and The Frost National Bank (collectively, the "Banks"). Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in that certain Secured Credit Agreement dated as of July 18, 1996 among the Borrower and the Banks (the "Credit Agreement"). In connection with the preparation of this opinion, we have reviewed the following instruments and documents executed by the respective parties thereto (the "Loan Documents"): 75 1. Each of the Notes, dated July 18, 1996, in the aggregate maximum principal face amount of $90,000,000 executed by the Borrower as maker and payable to the order of the Banks as set forth in Sections 2.07 and 3.06 of the Credit Agreement; 2. The Credit Agreement; 3. Pledge Agreement dated July 18, 1996 executed by the Borrower, as Pledgor, to Boatmen's, as agent for the Banks, as Pledgee; 4. Subsidiary Pledge Agreements dated July 18, 1996 executed by CCB Bancorp, Inc. and River Valley Holdings, Inc., as Pledgors, to Boatmen's, as agent for the Banks, as Pledgee; 5. The certificates representing the shares of capital stock of the Pledged Subsidiaries; and 6. Irrevocable Stock Powers executed by the Pledgor. In our capacity as counsel for the Borrower and the Pledged Subsidiaries, we have examined originals or copies of such other documents, records and other instruments as we have deemed necessary or appropriate for the purposes of this opinion, including, without limitation, the following: A. Articles of Incorporation and Bylaws of the Borrower; B. Resolutions adopted by the Board of Directors of the Borrower; and C. Articles of Association or Articles of Incorporation, as the case may be, and Bylaws of each of the Pledged Subsidiaries. In rendering this opinion, we have assumed the genuineness of all signatures on documents, statements and certificates reviewed by us, the accuracy and authenticity of all documents, statements and certificates reviewed by us, and the conformity to authentic original documents of all documents, statements and certificates submitted to us as certified, conformed and photostatic copies. In those instances in which our opinion is rendered "to the best of our knowledge", it is intended to indicate that during the course of our representation, no information has come to the attention of those attorneys within our firm who have performed legal services in connection with the representation described in this letter that would give us actual knowledge of the inaccuracy of such statement; and unless otherwise specified herein, is not based upon any independent investigation to determine the accuracy of such statement, and no inference as to our knowledge should be drawn from the fact of our representation of the Borrower or the Pledged Subsidiaries. We have no knowledge of any factual information which has led us to conclude that the documents and certificates we have examined contain any untrue statement of a material fact. 68 76 Based upon the foregoing, and subject to the qualifications set forth herein, we are of the opinion under existing law as of the date hereof, that: (i) The Borrower is a duly organized and validly existing corporation, in good standing under the laws of the State of Missouri and has the corporate power and authority to execute, deliver and perform the Loan Documents and to own its properties and carry on its business as now being conducted, and is a duly registered bank holding company in good standing under the Bank Holding Company Act of 1956, as amended. 2. FB-Creve Coeur is duly organized and validly existing and is in good standing as a state bank under the laws of the State of Missouri; FB-Illinois is duly organized and validly existing and is in good standing as a state bank under the laws of the State of Illinois; FB-FSB is duly organized and validly existing as a federal savings bank under the laws of the United States; FB-America is duly organized and validly existing and is in good standing as a bank holding company under the laws of the State of Delaware; River Valley is duly organized and validly existing and is in good standing as a bank holding company under the laws of the State of Delaware; St. Charles is a duly organized and validly existing and is in good standing as a federal savings and loan association under the laws of the United States; CCB is duly organized and validly existing and is in good standing as a corporation under the laws of the State of Delaware; FB&T is duly organized and validly existing and is in good standing as a state bank under the laws of the State of California, and FCB is duly organized and validly existing and is in good standing as a corporation under the laws of the State of Delaware. 3. The Pledged Subsidiaries have the corporate power and adequate corporate authority to own their property and to carry on their businesses as now conducted. 4. The Loan Documents have each been duly authorized, executed and delivered by the Borrower and constitute the legal, valid and binding obligations of the Borrower enforceable in accordance with their respective terms, subject, as to the enforcement of remedies, to applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally, and subject to general principles of equity (including the exercise of judicial discretion in accordance with such principles), regardless of whether such enforceability is considered in a proceeding at law or in equity. Notwithstanding anything contained in this letter to the contrary, this firm is providing no opinion as to the enforceability of Section 9.01(13) of the Credit Agreement. 5. No consent or approval of or registration with any federal, state or local government or regulatory authority is required in connection with the Loan or the execution and delivery of the Loan Documents. Neither (i) the execution and delivery by the Borrower of the Loan Documents, (ii) the consummation of the transactions contemplated thereby, nor (iii) the 69 77 compliance by the Borrower with any of the provisions thereof, will conflict with or result in a violation or breach of the material terms or provisions of, or constitute a default under the Borrower's Articles of Incorporation or Bylaws or any rule, regulation, order, writ, judgment or decree of which we have knowledge of any court or government agency or instrumentality, or any agreement or instrument of which we have knowledge and to which the Borrower is a party or with respect to which the Borrower is bound and which would materially adversely affect the Borrower's ability to perform its obligations under the Loan Documents. 6. To the best of our knowledge, limited to reasonable inquiry of the officers of the Borrower, there are no actions, suits or proceedings pending or threatened, affecting the Borrower or any of its subsidiaries or affiliates, at law or in equity, before or by any federal, state, local or other governmental department, commission, board, bureau, agency or authorities, the result of which would materially and adversely affect the Borrower's ability to perform under the Loan Documents or which would have a material adverse affect upon the Borrower or such subsidiary or affiliate. 7. To the best of our knowledge, limited to reasonable inquiry of the officers of the Borrower, there exists no default by the Borrower or any Pledged Subsidiary with respect to any order, writ, injunction, or other decree by a court or any other governmental department, commission, board, bureau, agency or instrumentality. 8. The capital stock of each of the Pledged Subsidiaries listed on Exhibit L to the Credit Agreement has been duly authorized --------- and validly issued and is fully paid and nonassessable (except with regard to First Bank & Trust) and free of preemptive rights, and, to the best of our knowledge, limited to reasonable inquiry of the officers of the Borrower, is owned by the Borrower free and clear of all liens, claims and encumbrances, except for the security interest created under the Pledge Agreement and the Subsidiary Pledge Agreements to Boatmen's as agent for the Banks. 9. Upon delivery of the stock together with executed stock powers, of each Pledged Subsidiary to the Agent, the Agent, for the benefit of the Banks, will have a perfected first priority security interest in the stock of each Pledged Subsidiary pursuant to the Pledge Agreement and the Subsidiary Pledge Agreements. 10. To the best of our knowledge, limited to reasonable inquiry of the officers of the Borrower, with respect to the Borrower and each Pledged Subsidiary, except for the matters disclosed on Schedule 9.01(10) to the Credit Agreement there are no existing orders, agreements or memoranda from any bank regulatory authority with respect to regulatory violations or compliance requirements. The opinions expressed herein are limited to the applicable laws of the United States and the States of Missouri and Illinois and no opinion is expressed with respect to the laws of any 70 78 other jurisdiction or state with respect to the effect of any such laws on the matters dealt with herein. As to various questions of fact material to these opinions, we have relied upon the truth of various representations and warranties of the Borrower contained in the Loan Documents and upon such representations and certificates of officers of the Borrower and the Pledged Subsidiaries as are provided on Exhibit A attached hereto. This opinion is provided solely for the purpose of complying with the requirements of the Loan Documents and, without our prior written consent, may not be relied upon by any person, firm or entity whatsoever other than each of the Banks and its or their respective successors and assigns. Very truly yours, 71 79 EXHIBIT L --------- PLEDGED SUBSIDIARIES -------------------- First Bank (Creve Coeur, Missouri) First Bank (O'Fallon, Illinois) First Bank FSB First Banks America, Inc. River Valley Holdings, Inc. St. Charles Federal Savings and Loan Association CCB Bancorp, Inc. First Commercial Bancorp, Inc. First Bank & Trust 72 80 EXHIBIT M --------- LIST OF AFFILIATES ------------------ Hermanhoff Winery, Inc. Tidal Insurance, Ltd. First Securities of America, Inc. First Services, L.P. Southside Bancshares, Inc. First Brokerage, L.P. Investors of America, Limited Partnership 73 81 EXHIBIT N --------- IDENTIFICATION OF FINANCIAL STATEMENTS -------------------- (1) Audited consolidated financial statements for First Banks, Inc. and subsidiaries for the fiscal years ending December 1994 and 1995. (2) Audited consolidated financial statements for First Banks America, Inc. and subsidiaries for the fiscal years ending December 1994 and 1995. (3) Audited consolidated financial statements for First Commercial Bancorp, Inc. and subsidiaries for the fiscal years ending December 1994 and 1995. (4) Unaudited consolidated financial statements for First Banks, Inc. and its subsidiaries, both prepared by Borrower, for the period ending March 31, 1996. (5) Unaudited consolidated financial statements for First Banks America, Inc. and its subsidiaries, both prepared by Borrower, for the period ending March 31, 1996. (6) Unaudited consolidated financial statements for First Commercial Bancorp, Inc. and its subsidiaries, both prepared by Borrower, for the period ending March 31, 1996. 74 82 EXHIBIT O --------- OWNERSHIP OF SUBSIDIARIES -------------------------- FIRST BANK-ILLINOIS 400,000 Shares Owned/Controlled By First Banks, Inc. (100%) FIRST BANK (MISSOURI) 9,994 Shares Owned/Controlled By First Banks, Inc. Plus 6 Directors Qualifying Shares (100%) RIVER VALLEY HOLDINGS, INC. 10,000 Shares Owned/Controlled by First Banks, Inc. (100%) FIRST BANK FSB 96,254 Common Shares Owned/Controlled by First Banks, Inc. (63.66%) 54,946 Common Shares Owned/Controlled by River Valley Holdings, Inc. (36.34%) ST. CHARLES FEDERAL SAVINGS AND LOAN ASSOCIATION 100 Shares Owned/Controlled by First Banks, Inc. (100%) FIRSTSERV, INC. 30,000 Shares Owned/Controlled by First Banks, Inc. (100%) FIRST BANKS AMERICA, INC. 2,500,000 Class B Shares Owned/Controlled by First Banks, Inc. (66.20% of total voting) SUNDOWNER CORPORATION 10,000 Common Shares Owned/Controlled by First Banks America, Inc. (100%) BANKTEXAS, N.A. 2,049,000 Common Shares Owned/Controlled by Sundowner Corporation (100%) FIRST COMMERCIAL BANCORP, INC. 65,000,000 Common Shares Owned/Controlled by First Banks, Inc. (61.45%) 40,775,428 Common Shares Publicly Held (38.55%) FIRST COMMERCIAL BANK 117,908,667 Common Shares Owned/Controlled by First Commercial Bancorp, Inc. (100%) 750,000 Preferred Shares Owned/Controlled by First Commercial Bancorp, Inc. (100%) CCB BANCORP, INC. 457 Common Shares Owned/Controlled by First Banks, Inc. (100%) 3,100 Shares Series A Preferred 8% Non Cumulative Redeemable Owned/Controlled by First Banks, Inc. (100%) 1,000 Shares Series B Preferred 8% Non Cumulative Redeemable Owned/Controlled by First Banks, Inc. (100%) 75 83 FIRST BANK & TRUST 4,700,796 Shares Owned/Controlled by CCB Bancorp, Inc. (100%) 76 84 EXHIBIT P --------- LIST OF ADDRESSES ----------------- If to the Borrower: First Banks, Inc. 11901 Olive Blvd. Creve Coeur, MO 63141 Attention: Allen H. Blake Chief Financial Officer with a copy to (for notice requirements under Article IX hereof only): Greensfelder, Hemker & Gale, P.C. 2000 Equitable Building 10 South Broadway St. Louis, Missouri 63102 Attention: Sheldon K. Stock, Esq. If to The Boatmen's National Bank of St. Louis: 800 Market Street P.O. Box 236 St. Louis, MO 63166 Attention: David C. Buettner If to Harris Trust and Savings Bank: 111 W. Monroe Chicago, Illinois 60603 Attention: Patrick Horne If to American National Bank and Trust Company of Chicago: 33 North LaSalle St. Chicago, Illinois 60690 Attention: Lynn Lavender If to The Frost National Bank: 350 Bryan Tower 2001 Bryan Street Dallas, Texas 75201 Attention: Jerry L. Crutsinger Vice President Correspondent Banking If to Norwest Bank Minnesota, National Association: 100 East Wisconsin Avenue Milwaukee, Wisconsin 53202-4101 Attention: Alfonso Buscemi 77 85 SCHEDULE 3.13 OUTSTANDING LETTERS OF CREDIT ----------------------------- (see attached schedule) 78 86 SCHEDULE 5.05 OTHER AGREEMENTS ---------------- NONE 79 87 SCHEDULE 5.06 LITIGATION ---------- 80 88 SCHEDULE 5.08 PLAN TERMINATIONS ----------------- 1. As of December 31, 1993 the First Banks, Inc. Money Purchase Pension Plan was terminated and replaced effective April 1, 1994 with the First Banks, Inc. '401K Profit Sharing Plan. 2. Effective March 31, 1994, Heritage National Bank was merged into First Bank (Creve Coeur, Missouri). Heritage National Bank maintained an Employee Stock Ownership Plan which, incidental to the First Banks/Heritage National Bank merger, has been terminated. 81 89 SCHEDULE 9.01(10) REGULATORY ACTIONS ------------------ The Cease and Desist Order between the Federal Deposit Insurance Corporation and First Commercial Bank, dated August 17, 1992. The State Banking Order issued by the State of California, State Banking Department, Superintendent of Banks to First Commercial Bank, dated August 27, 1992, as amended. The Memorandum of Understanding between the Federal Reserve Bank of San Francisco and First Commercial Bancorp, Inc., dated October 17, 1994. The Memorandum of Understanding between the Federal Reserve Bank of San Francisco and Sunrise Bancorp, dated September 2, 1994. The Capital Impairment Order issued by the State of California, State Banking Department, Superintendent of Banks to First Commercial Bank, dated March 15, 1996. The Capital Impairment Order issued by the State of California, State Banking Department, Superintendent of Banks to First Commercial Bank, dated June 12, 1996. 82 EX-11.1 12 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11.1 2 FIRST BANKS, INC. Calculation of Earnings per Share
FOR THE NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ------------------------- ----------------------------------------------------------- 1996 1995 1995 1994 1993 1992 1991 Average shares outstanding: Class C preferred stock 2,199,672 2,200,000 2,200,000 2,200,000 2,200,000 643,169 0 Class A preferred stock 641,082 641,082 641,082 641,082 672,589 741,082 741,082 Class B preferred stock 160,505 160,505 160,505 160,505 160,505 160,505 160,505 Common Stock 23,661 23,661 23,661 23,661 23,498 23,144 23,144 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income 11,438,682 19,594,539 24,471,000 24,032,480 23,194,344 19,016,044 16,708,099 Preferred stock dividends: Class C preferred stock (3,712,501) (3,712,501) (4,950,000) (4,950,000) (4,950,000) (1,457,500) -- Class A preferred stock (512,866) (512,866) (769,000) (768,298) (799,299) (889,298) (889,298) Class B preferred stock (11,235) (11,235) (16,853) (16,853) (16,853) (16,853) (17,178) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income available to common stockholders 7,202,080 15,357,937 18,735,147 18,297,329 17,428,192 16,652,393 15,801,623 ========== ========== ========== ========== ========== ========== ========== PRIMARY EARNINGS PER SHARE 304.39 649.08 791.82 773.31 741.69 719.51 682.75 ========== ========== ========== ========== ========== ========== ========== Fully diluted earnings per share: Dividends per share: Class C preferred stock 1.6878 1.6875 2.2500 2.2500 2.2500 0.6625 0.0000 Class A preferred stock 0.8000 0.8000 1.1995 1.1984 1.1884 1.2000 1.2000 Class B preferred stock 0.0700 0.0700 0.1050 0.1050 0.1050 0.1050 0.1070 Class A preferred stock outstanding 641,082 641,082 641,082 641,082 641,082 741,082 741,082 ========== ========== ========== ========== ========== ========== ========== Book value/share of common stock, beginning of year 7,038.7385 6,307.8434 6,307.8434 5,654.0721 4,680.7741 4,146.6471 3,463.8783 Dilution of common equity upon exercise of options and warrants of subsidiary bank (24.8765) (39.4200) (46.1530) (44.6700) -- -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 7,013.8620 6,286.4234 6,261.6904 5,609.4021 4,680.7741 4,146.6471 3,463.8738 ========== ========== ========== ========== ========== ========== ========== Common stock issuable upon conversion 1,828 2,045 2,048 2,286 2,739 3,574 4,279 Shares of common stock outstanding 23,661 23,661 23,661 23,661 23,661 23,144 23,144 ---------- ---------- ---------- ---------- ---------- ---------- ---------- 25,489 25,706 25,709 25,947 26,400 26,718 27,423 ========== ========== ========== ========== ========== ========== ========== Net income 11,438,682 19,594,539 24,471,000 24,032,480 23,194,344 19,016,044 16,708,099 Class C preferred dividends (3,712,501) (3,712,501) (4,950,000) (4,950,000) (4,950,000) (1,457,500) -- Class B preferred dividends (11,235) (11,235) (16,853) (16,853) (16,853) (16,853) (17,178) ---------- ---------- ---------- ---------- ---------- ---------- ---------- Fully-diluted net income 7,714,946 15,870,803 19,504,147 19,065,627 18,227,491 17,541,691 16,690,921 ========== ========== ========== ========== ========== ========== ========== FULLY-DILUTED EARNINGS PER SHARE 302.68 617.39 758.66 734.80 690.43 656.54 608.65 ====== ====== ====== ====== ====== ====== ====== Includes Accumulated dividends of 412,500 for 1992
EX-12.1 13 STATEMENT RE COMPUTATION OF RATIO OF EARNINGS 1 EXHIBIT 12.1 2 Ratio-Fixed Ch. First Banks Ratio of Earnings to Fixed Charges September 30, 1996
Nine months 1996 1995 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- ---- ---- Net income before tax and minority interest 16,215 28,193 34,156 35,807 34,020 28,540 25,851 Add back: Interest: With deposits 106,580 106,350 144,945 70,670 58,058 79,529 106,848 Without deposits 13,077 23,338 28,883 6,581 972 4,239 4,630 Rent expense 3,200 2,257 3,174 1,079 1,000 1,303 1,652 Earnings base: Without deposits 32,492 53,788 66,213 43,467 35,992 34,082 32,133 With deposits 125,995 136,800 182,275 107,556 93,078 109,372 134,351 Preferred stock dividends 4,237 4,237 5,736 5,735 5,766 1,951 906 Rent expense 3,200 2,257 3,174 1,079 1,000 1,303 1,652 Interest: Deposits included 106,580 106,350 144,945 70,670 58,058 79,529 106,848 Deposits excluded 13,077 23,338 28,883 6,581 972 4,239 4,630 Fixed charges: Including interest on deposits 114,017 112,844 153,855 77,484 64,824 82,783 109,406 Excluding interest on deposits 20,514 29,832 37,793 13,395 7,738 7,493 7,188 Ratio: Including interest on deposits 1.11% 1.21% 1.18% 1.39% 1.44% 1.32% 1.23% Excluding interest on deposits 1.58% 1.80% 1.75% 3.25% 4.65% 4.55% 4.47%
EX-16.1 14 LETTER RE ACCOUNTANTS 1 EXHIBIT 16.1 2 December 20, 1996 Office of the Chief Accountant SECPS Letter File Securities and Exchange Commission Mail Stop 9-5 450 Fifth Street, N.W. Washington, D.C. 20549 Sir: We have read the section entitled "Experts" included in Registration Statement No. ______________ to be filed with the Securities and Exchange Commission by First Banks, Inc. and are in agreement with the statements contained therein. Very truly yours, ARTHUR ANDERSEN LLP By Patrick M. Mathiesen PMM/SECLTR4 Copy to Mr. Larry Brost First Banks, Inc. EX-23.1 15 CONSENT OF EXPERT 1 EXHIBIT 23.1 2 INDEPENDENT AUDITORS' CONSENT The Board of Directors First Banks, Inc.: We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP St. Louis, Missouri December 20, 1996 3 INDEPENDENT AUDITORS' CONSENT The Board of Directors First Commercial Bancorp, Inc.: We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. /s/ KPMG Peat Marwick LLP St. Louis, Missouri December 20, 1996 EX-23.2 16 CONSENT OF EXPERT 1 EXHIBIT 23.2 2 Consent of Independent Public Accountants As independent public accountants, we hereby consent to the use of our reports (and to all references to our Firm) included in or made a part of this registration statement. /s/ Arthur Andersen LLP San Francisco, California December 20, 1996 EX-25.1 17 STATEMENT OF ELIGIBILITY 1 EXHIBIT 25.1 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) --------------------- FIRST BANKS, INC. ----------------- (Exact name of obligor as specified in its charter) MISSOURI 43-1175538 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 135 North Meramec Avenue St. Louis, MO 63105 (314) 854-4600 (Address of principal executive offices) (Zip Code) -------------------- % SUBORDINATED DEBENTURES DUE 2027 (Title of indenture securities) 3 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 4 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 19TH DAY OF DECEMBER, 1996. STATE STREET BANK AND TRUST COMPANY By: /s/ Paul D. Allen -------------------------------------- PAUL D. ALLEN VICE PRESIDENT 2 5 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 FIRST BANKS, INC. of its SUBORDINATED DEBENTURES DUE 2027, 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: DECEMBER 19, 1996 3 6 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 Dollars ASSETS 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 7 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 18 STATEMENT OF ELIGIBILITY 1 EXHIBIT 25.2 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) --------------------- FIRST BANKS, INC. ----------------- (Exact name of obligor as specified in its charter) MISSOURI 43-1175538 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 135 North Meramec Avenue St. Louis, MO 63105 (314) 854-4600 (Address of principal executive offices) (Zip Code) -------------------- GUARANTEE (Title of indenture securities) 3 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 4 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 19TH DAY OF DECEMBER, 1996. STATE STREET BANK AND TRUST COMPANY By: /s/ Paul D. Allen ------------------------------------ PAUL D. ALLEN VICE PRESIDENT 2 5 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 FIRST BANKS, INC. 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: DECEMBER 19, 1996 3 6 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 Dollars ASSETS 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 7 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 19 STATEMENT OF ELIGIBILITY 1 EXHIBIT 25.3 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) --------------------- FIRST PREFERRED CAPITAL TRUST ----------------------------- (Exact name of obligor as specified in its charter) DELAWARE XX-XXXXXXX (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 135 North Meramec Avenue St. Louis, MO 63105 (314) 854-4600 (Address of principal executive offices) (Zip Code) -------------------- PREFERRED SECURITIES (Title of indenture securities) 3 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 4 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 19TH DAY OF DECEMBER, 1996. STATE STREET BANK AND TRUST COMPANY By: /s/ Paul D. Allen ------------------------------------ PAUL D. ALLEN VICE PRESIDENT 2 5 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 FIRST PREFERRED CAPITAL TRUST 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: DECEMBER 19, 1996 3 6 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 Dollars ASSETS 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 7 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-----